Hartford Business Journal

24 HARTFORDBUSINESS.COM | March 6, 2023 FOCUS: Banking & Finance By Skyler Frazer sfrazer@hartfordbusiness.com C onnecticut has seen a number of notable small- to midsize mergers to kick off 2023, possibly signaling a healthier M&A environment for businesses and private equity firms in the year ahead. In January, Glastonbury-based accounting and consulting firm Fiondella, Milone & LaSaracina (FML) announced it completed a merger with Bregman & Company. In February, aerospace manufacturers Whitcraft Group and Paradigm Precision announced the completion of their merger and rebranding into Pursuit Aerospace. In other deals, Hartford-based kitchen cabinet and countertop retailer Express Kitchens bought New Jersey's Direct Cabinet Sales, while private equity-backed firms in separate deals purchased Waterbury- based GEM Manufacturing and Manchester manufacturer Keystone Paper & Box Co. Some experts predict M&A activity could pick up this year, after cooling off in the fourth quarter and declining overall in 2022, following a red-hot deals market a year earlier. Other experts are more cautious, arguing the U.S. and local M&A markets still face headwinds, from the war in Ukraine, higher interest rates, and supply chain and labor issues across several industries. "Last quarter of last year and into this year so far, M&A has slowed, but there are some bright spots on the horizon," said Ramsey Goodrich, a managing partner at Southport- based investment banking firm Carter Morse & Goodrich. M&A landscape Recent local deals have been driven by different factors. 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. This isn't FML's first merger: the company has acquired three other firms in its 20-year history, including two at the start of 2020, before COVID-19 hit in full force. The pandemic set off a wave of M&A activity, particularly in 2021, when 21,694 U.S. deals were recorded, up 32.4% from a year earlier, and up 43% from 2019, according to data from Ohio-based national lender KeyBank, which has a major Connecticut presence. "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." Ramsey, the investment banker, said 2021 was a record-breaking year and the first three quarters of 2022 remained active. However, deal activity slowed in the fourth quarter as capital markets tightened. There were 17,904 M&A deals nationally in 2022, according to KeyBank, down 17.5% from a year earlier but still above 2020 and 2019 levels. "Interest rates started going up, banks stopped lending or really curtailed their lending, and there's an economic uneasiness throughout the middle market," Ramsey said. Ian Butler, a lawyer with Glastonbury-based law firm Brown Paindiris & Scott, said he typically sees an uptick in M&A activity at the end of each year for tax reasons, or because companies want to enter the next year with a clean balance sheet post merger. "That was noticeably not" the case last year, Butler said. Valuation gap One key driver of middle market M&A activity this year and into the future will be the continued graying of business owners, said Bradley Hardy, senior vice president of commercial banking at KeyBank. "You've got a lot of owners who are aging, and they don't necessarily have a son or a daughter or a family member to whom they're looking to transition the business to," Hardy said. "So, in many cases, they're going to exit that business through a sale to a strategic buyer, Buyers & Sellers Rising interest rates, economic uncertainty complicate M&A outlook, but deals market still active Bradley Hardy Ian C. Butler Ramsey Goodrich HBJ PHOTO | STEVE LASCHEVER Frank Milone is the founding partner of Glastonbury-based accounting firm Fiondella, Milone & LaSaracina, which acquired Connecticut CPA firm Bregman & Co. earlier this year.

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