Middle market companies in the Commercial and Industrial sector have been coping with the combined challenges of higher inflation, rising interest rates and concerns about recession. Companies with strong balance sheets can withstand the turbulence and are taking a wait and see approach. Going forward we see continuing uncertainty affecting the various verticals in the sector.

 

Specialty Finance

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After going at a fever pitch in 2021 and 2022, 2023 has been characterized by a significant reduction in private equity M&A activity. According to Bloomberg data, with total deal volume of $559 billion, Q1 2023 was the fifth in an unprecedented string of quarterly declines in PE investment and the third-lowest M&A deal volume in a single quarter this decade. Unless market conditions change significantly, we see this slowdown continuing for the foreseeable future.

 

Food & Beverage

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After moving at a pace during Covid, the F&B sector is experiencing margin compression caused by inflation. The Wall Street Journal notes that food prices increased faster than the consumer price index last year. According to the U.S. Bureau of Labor Statistics, processed-food prices rose 14% higher in 2022, almost four times the 20-year annual average, while fruit increased 18% and vegetables 51%. In the face of higher prices, consumers have begun changing their spending behavior to some extent, cutting back or buying cheaper brands. While the CPI data released in March showed some moderation in the inflation rate, it will remain a significant factor for F&B companies going forward.

 

Technology

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In Q1, technology companies experienced the eruption of events in the banking environment and customers needed a new home for their business. Both CNN and Bloomberg reported that some banking institutions took in billions in new deposits over a few days. At BHI, we have also been seeing a significant increase in activity and volume to assist technology clients that need banking services. As the uncertainty in the banking sector continues, we will continue to support technology companies with expedited execution and dedicated service.

 

Two bright spots in the sector discussion include project finance and BHI’s Israeli business. In terms of project finance, we see unlimited growth potential in solar and geothermal going forward. BHI’s Israeli business remains steady and strong, and we will continue to provide robust support to Israeli companies with subsidiaries in the U.S.

 

Generally, our outlook going forward is for prudence and responsible growth in the face of a turbulent and uncertain market. During these times, we would recommend that it is critical for Middle Market companies to stay in close contact, to be transparent and communicate regularly with their banking

partner. Overall we see greater demand for more personal service, which is BHI’s sweet spot. In both up and down markets, BHI is dedicated to providing the personal relationship our clients require.

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BHI is the U.S. division of Bank Hapoalim B.M.  Bank Hapoalim provides its clients access to a broad array of products and services available through its bank and non-bank affiliates. Not all products and services are provided by all affiliates or are available at all locations.  All credit products are subject to credit approval. Nothing contained herein should be construed as a commitment to lend by BHI or any of its affiliates.