M&A outlook is complicated, but deals market is still active

By Frank Milone, CPA, Founding Partner, Assurance & Advisory Services
Mar 06, 2023

I was interviewed for a Hartford Business Journal article about the M&A environment for businesses and private equity firms in 2023. There have been some notable small- to midsize mergers in Connecticut already this year, including FML’s recent merger with Bregman & Company.

As is stated in the article, there are experts on both sides the fence. Some predict M&A activity will pick up this year while others are more cautious. As a founding partner at FML, I have a lot of experience in M&A not only through clients but through FML itself. We’ve acquired four firms in our 20-year history.

Here are the sections of the article where I am quoted or where FML is mentioned:

FML Founding Partner Frank Milone said his CPA firm’s recent acquisition complements its accounting and advisory services with Bregman & Co.’s tax expertise for small businesses and high-income individuals.

Just as important, the deal deepens FML’s Greater Hartford footprint — it already had offices in Glastonbury, Enfield and Stafford Springs — and expands the firm’s reach into Fairfield County. Bregman now operates as a division of FML, retaining its existing Stamford and Avon locations.

“They have a strong focus and presence in two markets where we didn’t have a physical office,” Milone said. “We’re looking for opportunities to find firms that have really high-quality people, but also have strategic locations that can benefit the firm as a whole.”

Following the merger, FML now has more than 120 employees, including 18 partners and 42 certified public accountants. The firm expects to hire additional staff this year, Milone said.

“What we saw with COVID is owners of smaller to middle-market companies got tired — it was a strain to keep the business focused, to keep the business afloat — and I think it shed a light on the fact that a lot of their value is still sitting there in the value of their business,” Milone said. “It really pushed them to reassess whether they should cash out, or take some money off the table.”

FML’s Milone said private equity firms have been sitting on a lot of cash waiting for good value opportunities in the M&A space. That’s why they’ve been particularly active buying up Connecticut firms ranging from small machine shops to insurance agencies.

Firms looking to make a strategic purchase often operate in similar or adjacent industries as their acquisition targets, he said.

However, what’s happened more recently — because of inflation, higher interest rates and overall economic uncertainty — is a disparity in valuations: buyers simply aren’t willing to pay what they previously were pre-pandemic.

“The buyers are seeing more value in buying now because the valuations are going down,” Milone said. “It used to be a seller’s market because the valuations were so high and they could get what they wanted and they were driving the process. Now what we see is that the value has kind of shifted a little bit.”

Milone said buyers right now are targeting well-run companies with quality management teams. Differentiation in product segments is also important, he said, especially for startups hoping to introduce new technologies to market.

“If you’re a good quality company with a good management team and a good product or service or technology, there’s always going to be an opportunity to merge into bigger companies,” Milone said.