California regional M&A update: H2 2023

Introduction

Baker Tilly Capital, LLC’s California regional mergers and acquisitions (M&A) update provides a recap of middle market transactions (i.e. deals with reported enterprise value between $10 million and $1 billion) with the target company located in California.

Transaction activity

Middle market M&A activity in California continued to decline in the second half of 2023 (H2 2023). Both the number of transactions and the aggregate disclosed values of announced transactions declined relative to the near term, H1 2023, and over the five-year look-back period. There was a total of 69 reported announced middle market M&A transactions during H2 2023, an 18% decrease from H1 2023 and a 32% decrease when compared with H2 2022. The aggregate disclosed value of middle market M&A transactions in California totaled $11.6 billion during H2 2023, a 14% decrease from H1 2023 and the lowest semiannual total over the historical period (2019-2023).

Transaction valuations

Reported average enterprise value/revenue multiples in H2 2023 ticked down relative to H1 2023 as well as the broader five-year look-back period. Average enterprise value/EBITDA multiples increased from 10.7 times in H1 2023 to 16.4 times in H2 2023. Average enterprise/EBITDA multiples reached their highest level since the second half of 2019.

Transaction profiles

Strategic buyers were the most active buyer type in H2 2023 in California. During the second half of 2023, strategic buyers represented 88% of announced transactions with reported data.

Middle market M&A transactions in California were most active in the information technology sector, accounting for 28% of transactions during H2 2023. Healthcare, industrials, and consumer discretionary service sectors made up the second, third, and fourth categories representing 25%, 12%, and 10%, respectively. Financials, consumer staples, communication services, undisclosed, and energy, rounded out the balance, representing approximately 25% of the middle market M&A transactions in H2 2023 in California.

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