How is the M&A market affected by supply chain, interest rates and other concerns?

ROD DOLAN: OK, great. And then secondly, if you have any questions for us, please send them in through the chat, and we will address them if we have time at the end. So let me introduce the panel that we've got today. First, we have Matt Schoeppner, who is a Senior Economist in the Investor Relations Group for U.S. Bank. Previously, Matt was an economist for TCF Bank, an economist for the Minnesota Office of Management and Budget, and he also worked for the Minnesota Department of Employment and Economic Development. 
Next, we have Mike McCoy, who is a managing director with BOAS. Mike's been with us for three years and covers states in the Midwest. He also covers Texas and Utah. And prior to joining U.S. Bank, he worked in investment banking for Baker Tilly, Peakstone Securities, and Dresner Partners. 
And then third, we have Mike Parham, who is also a Managing Director with BOAS. He started last fall and covers California, Arizona, Nevada, and New Mexico. And prior to U.S. Bank, Mike worked in investment banking with McGladrey, Peter Solomon, and Sheridan Mezzanine. 
Mike and Mike are two of five managing directors for BOAS, and BOAS specializes in helping private company owners with ownership transition and expansion through acquisition. Mickey, if you'd show the map here that we have. As you can see, our group has national coverage. If you're considering transition of ownership, you've received an offer for your business, or you've identified a company you want to acquire, please give us a call. We have deep experience in M&A. 
So let's get started on the program. And you can take down the map now. Thank you. So the first question is for Matt. Matt, the economy seems to be doing better as we came out of COVID. Then it was reported that the economy contracted in Q1. What are your thoughts on the Q1 results and the outlook for the rest of the year? 
MATT SCHOEPPNER: Indeed, the report card for the first quarter really effectively showed, I think, that the US expansion hit the pause button in the first three months of the year, actually declining for the first time since the early quarters of the pandemic. I'd say my takeaway from the print was actually that the top line number just remains especially volatile, which is more, I think, a reflection of waves of the pandemic as well as other factors, which include big swings in inventory accumulation and trade, which all definitely had an outsized impact. 
And if you dig even deeper into the detail, you actually find still strong measures of underlying demand bolstered by consumer spending and business investment that combined actually rose by almost 4% in the first quarter. So obviously not suggesting a recession is imminent by any means. And that's what we really continue to see across most high-frequency or higher-frequency measures of activity right now. Manufacturing and services sectors are both still expanding solidly. Consumer spending still tracking strong growth even through April. 
The labor market is rip-roaring with jobless claims dropping to their lowest level we've seen in over 50 years. Job vacancy data showing there's still nearly two open positions for every job seeker, and the latest employment report continuing to point to still exuberant demand. For example, we learned last Friday that April actually marked the 12th consecutive month with payroll increases in excess of $400,000, and this just continues the longest stretch of such strong job growth we've ever seen, at least in data dating back to 1939. 
And this has quickly pushed the unemployment rate to a new cyclical low of 3.6% in recent months. This is just a tick above where it was prior to the pandemic. And this also has been just remarkable. I mean, in just the past 9 or 10 months, unemployment has fallen by more than two full percentage points, which outside of the sharp decline we saw amid the reopenings in the summer of 2020, the last time it fell that much over such a short period was over 70 years ago. 
So really just a testament to extraordinarily steady and record-long performance that we've seen in the labor market. But that said, the early months of this year have been challenging. They've seen its challenges. The economy has faced a re-intensification of the pandemic from Omicron, labor shortages, ongoing supply chain bottlenecks that are now being exacerbated by China's zero COVID policy and lockdowns. Higher commodity prices resulting from Russia's war with Ukraine, which has fanned what was already heated inflation with 12-month measures of both consumer and producer prices touching their highest we've seen in 40 years. 
And then you now layer on top of that a Federal Reserve that's tightening policy rapidly and aggressively. As it's seen, it's still very hot. Their aim is simply to slow demand by exerting pressures on financial conditions, and they're really getting what they want, as we've seen in the last couple of weeks, where stress has been very evident-- weakness in equity markets. I think last time I checked, S&P was down 17% year-to-date. Notable widening and corporate credit spreads, a stronger dollar is in and of itself near multi-decade highs, which ultimately hurts US manufacturers. 
Otherwise, I think it's the higher borrowing costs that will ultimately be a significant drag on both household and business activity later this year and into next. Mortgage rates, for example, have risen by about 2 to 4 percentage points in the past few months to over 5% now for the first time in more than a decade, and so this is going to put even further strain on affordability. With that said, I'll also add it's still my belief that fundamentals remain consistent with this expectation that the US will continue to see just more moderate economic growth, at least through the first part of next year. 
For instance, household balance sheets are still very strong, sitting on a significant amount of savings that were built up during the pandemic, which will help limit the impact of higher [INAUDIBLE]. Corporates have thus far been able to overcome the inflationary wave for the most part, as well, with profit margins recently at their highest we've seen in 70 years. So to me, this is a sign that companies, too, are easily passing along their rising costs and more through pricing power. 
So I think while inflation obviously remains a big question, I'm still generally optimistic that it will start to moderate here in the coming months, and that the economy will indeed weather this storm so long as we don't continue to see new supply shocks that could potentially push up costs even further. This is really what this has been all about. Of course, I may be saying something different in a few weeks depending on how markets continue to react-- just life. If they continue to go forward like they are now, the Fed may be in a position to need to reverse things a little bit. 
ROD DOLAN: OK. Matt, a follow-up question-- you talked about the unemployment rate. I've heard that the labor participation rate is very low. Is that true? And what's causing that? 
MATT SCHOEPPNER: Sure. So what we've learned through this is that while labor demand remains very strong, it's the workers or the supply that continue to be scarce, with employers really just doing, I'd say, everything they can to find people and expand payrolls. So yes, if there's a disappointment in the labor market data, it's undoubtedly that the participation rate really remains stubbornly flat throughout most of last year. 
Encouragingly, I'd say, we've seen some thawing over the past six or so months, but even then, it's still a full percentage point below where it was pre-pandemic. Really, this is because millions of people haven't yet returned to the labor force for a multitude of reasons-- because they're sick, they're caring for someone who's sick, they're fearful of the virus themselves, staying home with kids who can't go to school or daycare, or they've just decided to retire. So some of this, I think, will indeed continue to thaw as the pandemic winds down, but I don't think it generates enough excess, for example, to meet the current demand for labor, so it's not surprising that businesses are having a difficult time filling open positions and dealing with both retention and rising wage pressures. 
But again, I think the Fed's intent is to try and cool things off here a bit by causing employers to eliminate those job vacancies first without actually laying off existing workers, which has never been tried before. That's what makes this uniquely different. 
ROD DOLAN: OK. Now, you also mentioned about supply chain issues, which have caused the cost of raw materials and transportation to rise significantly. Do you think this is a long-term phenomenon, or it's just going to happen for this year? Will costs revert to previous levels in the near future? 
MATT SCHOEPPNER: So I think it's really easy to get caught up in the mix of just what has been an unprecedented shock to the economy over the past couple of years, just in terms of its scale on both supply and demand. It's upended the way people work, live, save, spend, specifically on goods, so talking about autos, electronics, home appliances, versus those services that were heavily disrupted by the pandemic like travel and restaurants and entertainment. But eventually, I still think this is going to settle out. 
Affordability is going to become an issue. We're already seeing it in housing and autos. There will likely be a significant shift back away from goods spending in favor of services. I think the logjams in trade and transportation will eventually ease, and that easing and supply issues will help businesses rebuild what were severely depleted inventories and otherwise expand capacity themselves. 
I'm also believer that the same secular forces that we've been grappling with for a few decades now-- specifically aging demographics, the widening economic disparities, and disruptive technologies-- are going to be waiting for us at the end of this thing. And these are deflationary, contributing to otherwise lackluster growth, a low period of inflation, and thereby low interest rates that I don't think we've seen the end of. But that said, I do think the big question is whether the world we now confront in the coming years might be materially different from the one we've known before, and really whether or not this run of bad luck isn't necessarily behind us in a year or two due to whatever it might be-- geopolitical tensions, protectionist policies, natural disasters. And this has the potential, I think, to put repeated stress on supply networks or shocks that continue to push up costs. 
But that said, I'm an economist, and we would say that markets eventually fix these problems in offshoring production, for example. But I'd say it's a real unknown looking ahead. 
ROD DOLAN: OK. All right, good. Mike Parham, I was going to ask you-- we deal with many different clients in different industries, and how are your clients dealing with the cost increases? 
MIKE PARHAM: Well, it's been a couple of years in a row of supply shocks to raw materials, for example, for my clients and our clients, so I think they've gotten used to buying whatever they can when they can get it. Taking delivery even if maybe that means, to some extent, over-buying and stockpiling certain items for inventory. Obviously that's tied up a lot of money in their working capital. 
And only recently, I think, have they-- and I found it interesting that Matt commented that they're easily passing prices through. I know that's not an easy decision for our clients to make, and it keeps them up at night, and only recently have I seen them actually start to consider passing through their prices. I think throughout the last two years, they were very reluctant to do that for how that might be perceived. But they've not been able to get the materials that they need when they need it, so when they do get a chance they, to some extent, are over-buying. 
I think they're also locking in terms where they can. Maybe it's hedging on commodities. As you know, steel prices, lumber prices, a lot of the key commodities have grown rapidly in price. Even if consumer inflation only recently seems to have gone up, it's been going up for quite a while for our clients. So they're locking in terms, even lease terms on real estate, I think, where they can. 
And I think another cost that's been really keeping them up at night is labor costs, so they've been looking at creative ways to hire and retain employees. And as you can tell, with the low unemployment rate, that's a challenge. So there's a lot keeping our clients up at night right now. 
ROD DOLAN: Right. OK, Margaret. Thank you. Matt, back to you, you mentioned about the Fed increasing interest rates, which they've been doing to combat inflation. Are they doing anything else to fight inflation? Are they doing anything with the money supply? 
MATT SCHOEPPNER: Yeah. So they've announced that they're going to start to draw down their balance sheet here starting in June, and effectively what that's doing is trying to mop up liquidity by shrinking their asset portfolio. It will effectively remove cash from the banking system, and thus another form of policy tightening by way of financial conditions. And I think they have a long way to go there, potentially outright selling their MBS and Treasury securities to the private sector at some point. 
ROD DOLAN: OK. All right, good. Well, let's make a transition here. Let's talk a little bit about the M&A market. Mike McCoy, could you give us a short summary, please, of the 2021 and year-to-date 2022 M&A market in terms of volume and maybe multiples and some of the driving factors behind the M&A market right now? 
MIKE MCCOY: Yeah, sure, happy to. It continues to be a very interesting ride, very positive ride in M&A. If you look at volume first, TTM deal count as of Q1 2022 was actually up from $8,123 in '21 up to $9,559 in 2022, and that's for all transactions less than $1 billion in enterprise value. So overall deal count has remained higher in both '22 and '21 compared to pre-pandemic levels so the M&A market's been rather robust. 
From a valuation perspective, TTM enterprise value multiples-- as of Q1 '22, they're at 10 to 12 times EBITDA, which is consistent with 2021 for all transactions between $250 million and a billion, and 8 to 10 times EBITDA for deals less than $250 million. And those are overall guidelines, but of course, transaction multiples should be viewed by industry as the best gauge on valuation trends. And as it relates to the driving factors, some of the factors from 2021 have continued into '22, and some are some new or additional factors, and one dropped off. 
What drove the market last year was a very strong US economy, with GDP growth and low unemployment, plenty of dry powder, with private equity buyers raising billions of capital in the last several years, S&P companies sitting on trillions in cash, and also the fact that buyers could fund deals with significant amounts of debt and mezzanine capital. There's been more buyers and sellers, so from a supply and demand perspective, deals have been pushed up and competitive in the marketplace, which has been boosting valuations. 
And a factor last year was taxes. As buyers were uncertain, sellers were uncertain of where capital gains rates were going. That drove a lot of sellers into the market early in 2021, but as that issue dropped off, it basically became a non-issue that hasn't continued to be a driving factor. So dry powder and supply and demand continue to drive deal activity. 
As Matt mentioned, overall, and despite a 1.4% GDP contraction, the expectation is for overall growth in GDP for '22. In fact, the US Treasury predicted economic expansion for the full year of 2022. So the M&A markets remain strong in Q1, deals that were in progress at year-end, but now buyers do have to look at some additional factors in the decision mix for transaction. That's including the war in Ukraine, inflation, interest rate hikes, and supply chain and backlog issues we'll talk about, that Mike Parham was talking about. Those factors have increased the level of due diligence in transactions, causing deals to take longer to close in 2022. 
Lastly, I'd say there's a focus on quality by buyers. Quality deals are still getting done, maybe at a little bit slower pace. But lower-quality deals where sellers have dressed up a non-performing asset-- those type of deals in this market, buyers are walking away. 
ROD DOLAN: OK, Mike. And following up on your comments there, the multiples that you mentioned were averages. Of course, a stellar company, a high-growth company, is going to command a higher multiple as opposed to one that's a low-growth company, right? 
MIKE MCCOY: Yeah, that's correct, Rod. Absolutely. And as mentioned, should be viewed by industry because each sector trades different enterprise value multiples, certainly. 
ROD DOLAN: All right, great. Mike Parham, Mike described very well what's going on in the M&A market. Have you noticed any changes in the types of buyers who are in the market? Are more strategic buyers out there or financial buyers? Or are there any other players right now? 
MIKE PARHAM: I think it's relatively similar to what it always has been in terms of the buyers that are out there. It might be a slight change in the mix. There's just a lot of cash on the sidelines, and the private equity funds are full of cash, and they need to put that to work so they can go out and raise their next fund, and they're finding good exits on their pre-existing deals. Meanwhile, family offices are sitting on a lot of cash, and they have more of a long-term perspective, so they're very aggressive as well. 
And then you have the strategics that are sitting on tons of cash. I think I heard recently $2.3 trillion sitting in cash on the S&P 500 balance sheets. So it would appear to be a seller's market with all this money sitting on the sidelines and loose credit and low interest rates, but that may start to change a little bit as rates go up and maybe credit gets a little bit tighter. 
I think you might see a slight shift away from the typical private equity-type deal towards a family office that maybe can have a little bit less leverage on the balance sheet when they make an acquisition. They have maybe a longer-term horizon for their investments. Unless, of course, the private equity funds start going out for deals that maybe will have a lower return on their investment, they may just have to accept that, which I think they will because I don't see that changing for a few years, at least. So if they want to keep raising funds, they're going to be just as aggressive as they always have been. 
So all in all, I think all three key participants are there. Even international transactions are quite active. And the US is relatively a lot more stable than the rest of the world, so I think it's a lot of deals into the US versus out. So that's how I would see it. And I think if we could weather the last couple of years like that and still be in such a solid market, my guess is it will be quite robust for a few years to come. 
ROD DOLAN: OK. All right, good. And question for Mike and Mike-- with the issues that we've been talking about here-- economic, pandemic-- have buyers changed the way that they evaluate companies before a purchase? 
MIKE MCCOY: I'll jump in here, Rod. Yeah, certainly as mentioned there's just a lot of variables to consider right now. So in the decision process, buyers are looking closely at supply chain issues. Economic factors have come to the forefront of due diligence efforts, and especially anticipated demand for products and services. Buyers are evaluating if inflation can be passed on to customers, although as Matt mentioned, for some corporate clients, that hasn't been an issue. In the end, consumers can only take on and absorb so much inflation or increased costs of debt before reducing discretionary spending. 
So a lot of this will depend on the industry. Right now we've got a deal in the transportation space, and thus far, our client has been able to pass on all the fuel price increases as a fuel price surcharge, and our client continues to be able to do that as long as needed. We're also working on a deal in the oil and gas industry, and that's been a really interesting industry to watch as oil and gas companies are producing record profits at current oil and gas commodity prices. So many of the oil and gas players are using the profits to buy back shares, increasing dividends, to the benefit of shareholders, and some of the miners are using the profits for acquisitions of oilfield opportunities as majors focus on divesting non-core assets. So all these variables are entering into the decision process as mentioned, causing a little bit more concern for cash flow projections and a little bit longer period of time to close transactions. 
MIKE PARHAM: Yeah, I would agree with that. I think, in general, buyers have to be more disciplined at this stage, and in order to do that, they're really reaching out to their advisors and consultants and accountants to help get them through the due diligence process. So whereas they may have done a lot of that in house before, I think they're really relying on expert advice because you've got a lot of curveballs being thrown at the last couple of years, so how do you normalize revenue and EBITDA when you've got supply chain and COVID and Ukraine and commodity price shocks? Just a lot of major issues. 
So really getting to the nuts and bolts of a normalized depiction of a company's performance-- it takes a lot of expertise. And so I think they're still evaluating the basics of cash flow and growth opportunity and that sort of thing, but I think they're really digging in deep to ensure that they're looking at the right numbers. 
ROD DOLAN: And as always, as we always tell our clients, it's best to be prepared. Get your house in order, be prepared for the questions that are going to come, and have your financials in good order as well. So yeah, OK. All right, well, why don't we move on and talk a little bit about some other factors that might be impacting M&A? And a reminder-- if you have any questions, send them in through the chat, and if we have a few minutes, we'll get to those. 
But Matt, let's get back to you. You mentioned about the supply chain problems, and we're seeing companies that are stockpiling inventory to be able to service their customers. Do you expect that to continue, or do you think are they being opportunistic right now? Or do you think that's going to wane? 
MATT SCHOEPPNER: Yeah. Mike mentioned it earlier. Undoubtedly, I think the current disruptions and volatility in prices is definitely making it difficult for businesses to manage their inventories. And yes, many have been stockpiling materials just to protect against potential shortages, which is now seemingly really on steroids, I'd say, as businesses over-book now, but also in anticipation of sustained higher prices maybe later. To that I'll say that the pandemic has not repealed what economists call the law of supply, which is that as the price of goods increases, the quantity of supply that suppliers offer will also increase. So I think it's possible that some businesses will ultimately get caught with these excess inventories down the road as they over-order today just to compensate for the delays. 
And this is actually a very common symptom of a boom-bust type cycle that has actually caused recessions in the past. I'm not on recession watch yet, but with such a large number of industries experiencing these volatility in prices and supply chain issues, I think it's likely that mistakes will be made, and that a sudden inventory correction could be very well in the cards. Typically, businesses are initially unaware of the slowdown in consumer spending or ignore it, and inventories start to pile up. And this imbalance is typically just a telltale sign of late-cycle behavior just, again, now being exaggerated by the pandemic. 
What I would say is I recommend watching closely your component of consumer spending, where the data is more reliable and more timely. And if it does start to weaken, it's a pretty good bet that many are still building inventories that sooner or later they may start to regret. 
ROD DOLAN: To combat the supply chain problems, are you seeing an increase in on-shoring? 
MATT SCHOEPPNER: I think rising wages and transportation costs globally make it worthwhile. And at the same time, organizations are looking to avoid a repeat of the past few years. So I think the consideration of moving operations specifically closer to end customers will be an increasing theme that we hear over the next few years, yeah. 
ROD DOLAN: OK. All right, great. Thank you. Mike McCoy, due to these shortages, customers have been placing multiple orders with suppliers. In fact, we're seeing bookings are much higher than sales because customers are pulling their orders if they get filled by another supplier. How is that impacting the financials for business? And is it impacting the evaluation during the M&A process? 
MIKE MCCOY: Sure. The supply chain issues and product shortages have become a major issue for both B2B and B2C channels, and especially those for consumer goods. Some products like appliances, outdoor grills, and furniture, and consumer staples have continued to enjoy very strong demand. 
However, retailers and suppliers of those products are relying on a significant number of global inputs, and those inputs have not been available on time in the supply chain. So even with that strong demand, those type of customers are placing orders in multiple places and then getting the order from wherever they can get it first. So that's causing a constraint, and that's causing an issue for those that had booked orders. I think that they would realize the sale, but that supplier ultimately did not realize it. 
So from a financial statement perspective, it's a challenge to accurately predict sales from the dynamics of incomplete orders and the effects of realization of revenues. And so that's certainly impacting decision-making for sales and operating teams of companies, as well as for the buyers that are conducting due diligence on company performance and evaluating the projected cash flows. 
ROD DOLAN: All right. Now a question for Mike and Mike, both. In terms of doing the M&A transactions, are you seeing any key issues that are complicating deals right now as they try and get them done? 
MIKE MCCOY: Yeah, sure. 
MIKE PARHAM: I'll jump into this one. I think it's hard to get a deal done even in a perfect environment, right? And here we've had a ton of external shocks to the system, so that by itself makes it difficult to get a deal done. But we've also had kind of a change internally in all companies, really, as the shift towards a mobile workforce. And so the culture at companies had changed quite a bit. The expectation that employees have versus what their owners have are different, frankly, than they were before COVID. 
And we've seen this situation where the owners thought they had their finger on the pulse of their business. They had a professional CEO running the company, but then with the mobile workforce, there's no one touching it every day, feeling the pulse and knowing what's going on. And sure enough, we get all the way close to the end of a deal and we find out that that workforce had chosen to unionize. 
So we're in new territory now with a mobile workforce, and I think any kind of internal shock that is not expected is way worse than an external shock because a buyer really does expect you to know your business, and if you don't know that your key customer is now gone or your key supplier has left, or you don't have a good relationship with your employees, those are deal-killers right off the bat. So I would say that's something to watch out for as we have a shifting, kind of widening gap between the expectations of employees and what it used to be. 
MIKE MCCOY: Yeah, I'd add a couple things. Really, that issue depends, Rod, largely on the products or services and the industry you're looking at, but the short answer is the buyers are definitely sharpening their pencils, conducting more diligence, and focusing on projections. So although 2022 remains a strong market, there's just more issues to consider. We're seeing, again, deals take longer to complete probably by about 10% to 15% compared to 2021. 
And that said, we're also seeing clients that are benefiting from the current factors. We've got a building product supplier we're working with right now. The supply is a multi-family home construction market, and they remain very bullish despite, or maybe because of, the potential rate hikes. In that example, they're anticipating consumers won't be able to afford homes that are already at high prices, and more people will be renting housing. So they view this rate hike environment as a bullish time to sell the company or even recapitalize the company. So you have to look at what are the driving factors driving demand by buyer interest and by industry? 
ROD DOLAN: Yeah. And following up on your comment there, Mike Parham, about unionization, we had a client that we were going through a process with, and we had offers for the company, and then all of a sudden, unbeknownst to the owners, the employees decided to unionize and all of the buyers who were interested in the company up to that point disappeared. So the process had to be started again, and the valuation has gone down quite a bit. 
So it's really important to pay attention to what's going on at your business. If you're thinking about selling, really taking care of it because how it performs during the sale process is super important. So OK, another question for Mike and Mike-- with the stock market correcting right now and public company multiples declining, do you expect that will impact private company valuations? 
MIKE MCCOY: Yeah, sure, Rod. It's typical for sellers to consider public company trading comps when they're making their decision and evaluating the anticipation on enterprise value. It's also typical for buyers to do the same within their sector, looking at where comparable similar companies are trading, maybe adjusting those valuations by a size discount. 
And then especially for prospective buyers in a transaction that are publicly listed, they take an even deeper look at what's commonly known as the accretive-dilutive effect. But that basically says that if that buyer were trading for 15 times EBITDA in the market, and they were able to acquire a company at 10 times EBITDA, those earnings purchased at 10 times EBITDA should effectively, given the same growth rates and margins, trade at 15 times EBITDA. 
If that buyer's valuation is compressed from 15 times EBITDA down to 12 times EBITDA, buying that same target has a lot less cushion, if you will, in terms of the accretive effect and strategic opportunity for that particular buyer, and other buyers may be better suited. They might not be able to create and bid an optimal purchase price because it's just not as good of a fit vis-a-vis other buyers that are maybe trading at a better valuation. So those are some of the factors I would see there. 
MIKE PARHAM: I would add a key factor. In the private markets, I think they're more driven by the credit markets and what the banks will lend on a deal than what the public comps are trading at. Even though, obviously, a seller would like to get those exciting public multiples, the buyers just don't play that game. They use kind of the typical LBO model of how things can get priced, and that's private deals, which really aren't comparable to a $10 billion publicly traded company, so they're going to discount those valuations significantly anyway. 
And I think that will change as credit tightens up, and that's where you'll get a shift maybe towards the family office type of buyer or strategic buyer. But that's kind of a back-and-forth that's always existed. 
ROD DOLAN: All right, good. Well, certainly there's a lot of things that are happening right now. It's very dynamic. So we'll put Matt on the spot here. So if you had to predict, Matt, what the GDP is going to do for the entire year after a negative first quarter, where are you thinking it's going to end up? 
MATT SCHOEPPNER: We've seen a couple years of just extraordinary GDP coming out of the pandemic, so it's coming off of a low base. But what the Fed's trying to do is effectively slow-- moderate-- underlying growth into more of that 2% potential rate, which is just simply a long-term theoretical number based on how many workers are you adding each year versus how efficient are they? 
So I'm kind of the belief that they will get there, that we're going to see things kind of ease out probably into the mid 2's this year and closer down in the lower 2's next year, is my current forecast. 
ROD DOLAN: OK. Yeah, well, it sure sounds like we've got some headwinds right now for the economy. There are lots of different factors going on into the M&A market. But from our perspective, we're seeing that deals are getting done. 
In fact, we have 10 deals in the market right now, and buyers still remain very interested, so I think that's good news for us. We'll just have to keep our fingers crossed that the Fed can pull this off without pushing things into a recession, but I think they will. I think they'll do a great job on that. All right, any final comments from any of you guys? 
[INTERPOSING VOICES] 
MATT SCHOEPPNER: There's a question out there, Rod. 
ROD DOLAN: Go ahead, Matt. 
[INTERPOSING VOICES] 
MIKE PARHAM: I think the first one I'm going to ask Matt to answer since I couldn't answer this one. Matt, do you want to take a crack at that first question that someone-- 
MATT SCHOEPPNER: Yeah. It says, "Regarding the labor force participation rate, isn't it likely that as households work through the savings they accumulated from inflated government transfer payments during COVID, more workers will need to re-enter the workforce? So yes, I think that one factor behind my optimism is that household balance sheet piece-- very strong, as Greg is getting to here. 
Consumers are sitting on a significant amount of savings that they built up during the pandemic, which will indeed help limit the impact of higher costs on purchasing power. The savings rate, for example, has only recently fallen back in line with the trend we saw prior to the pandemic. And if you add it all up, all that excess cash that households have accumulated from fiscal stimulus and government support, I'd say it's also a result of just foresavings, as the pandemic really prevented consumers from spending on certain services. 
But right now there's still more than $2 trillion sitting in bank accounts. This is on top of what would have been saved if the pandemic hadn't occurred, which is roughly equivalent to about 12% of GDP, so it's not trivial. But that said, much of the money is likely to be treated as wealth or assets, maybe a better way to put it, as most of it, I'd say, is saved by older or higher-income and educated households who mostly kept working and are less likely to spend it, at least quickly. 
To Greg's point, too, now that the government support side on this. It was dried up. I do expect that to have some positive implications for supply. There's roughly 3 million people, I'd say, missing from the labor force, which is relative to prior to the pandemic, and roughly half of those are retired, so call it a little over a million people that are still kind of sitting on the sidelines waiting to get in. And I do think that as they continue to exhaust their means, whatever it might be, that we're going to see some thawing there. 
There's a powerful tailwind of buying power happening, even as this government support wanes and inflation continues to run high. And I've said this more, that consumers are fickle, and this is evidenced by how we've upended ways we work and live. So actually, it wouldn't surprise me if people really start to let loose on the backside of the pandemic for things like travel and entertainment this summer, and also per of the question coming back into the labor force, as well, which in and of itself will help ease supply issues and make the Federal Reserve's job a little easier. 
ROD DOLAN: I guess they'd have to come back in to pay for all those activities, right, Matt? 
MATT SCHOEPPNER: Yeah, exactly. And wages are high, so there's a reservation wage, there's an incentive for people to come back in simply due to that too. So there's a lot of reasons to be optimistic about the summer that I think are overlooked right now. 
ROD DOLAN: OK, good. There's another question in here. This person said, "There's a lot of attention paid to EBITDA versus adjusted EBITDA. So what are the typical adjustments to EBITDA?" So Mike or Mike, one of you guys want to take that, please? 
MIKE PARHAM: Adjusted EBITDA really just adds back those items that really are not operating expenses. Oftentimes in a private company, the owner will pay themself a higher salary than is typical or standard for the market, or perhaps they'll run family expenses through the business that shouldn't be run through the business. There's also adjustments that are represented by kind of one-time, non-recurring charges. It could be something like you built a new plant. 
Well, that's kind of a one-time thing unless you're in the business of building plants all the time. That's a one-time expense that doesn't really impact-- and even the shutdown of the plant during that period of time might be an adjustment because it's not a normalized operating expense. And even hiring advisors to get a deal done through their retainer fee is an adjustment because it's not something you do every year, or lawsuit, certain expenses with lawyers. So those are typical adjustments that we see. 
ROD DOLAN: OK. There's another question here. It says that, "When deals are done, people typically say there's a multiple of EBITDA, which is the price that's paid. Does this refer to base EBITDA or adjusted EBITDA, and is it based on last 12 months or a projected EBITDA?" Mike McCoy, why don't you to take that? 
MIKE MCCOY: I'll jump in on that, Rod. The range of EBITDA multiples I mentioned are based on reported EBITDA through database companies, but those would be assumed to be a TTM EBITDA at the date of the reporting of the closure of the transaction. So if you see a basic manufacturing company with low growth rates or modest margins trading at 20 times EBITDA, that's probably not relevant or should be thrown out. That might have been their enterprise value to actual earnings, and they should be using their normalized earnings, as adjusted with the adjustments Mike Parham walked through. 
So we typically look at LTM normalized EBITDA at the time of the transaction and run that into enterprise value. In deals that we're working on-- there was a part of that question that says what about the run rate or projected EBITDA? Certainly it's important to maintain understanding of your run rate as an operator, be able to prove that the run rate of your revenues and EBITDA are performing in line with your LTM EBITDA. And oftentimes, we also work with management in terms of providing a projected EBITDA that demonstrates continued growth in a backlog of pipeline that supports that continued growth, and pushing purchase price multiples to the highest levels we can and optimize the transaction. 
ROD DOLAN: OK, great. All right, good answer. All right, well, we're, at 45 after, and so I think we'll wrap this up. Thanks, everyone, for attending. And we hope you found this informative. Thanks very much to Matt, Mike, and Mike for sharing their thoughts today. Appreciate your time. 
So as I mentioned before, if you need any advice on M&A, we're available to help you out, so please give us a call. The M&A market is active, and despite everything else that's going on, the M&A market is there. Well, thanks, everyone, for attending. Have a great day. Thank you. Bye now.