There's been an elephant in the room at the Mergers & Acquisitions Institute in Dallas, and that, of course, is the fact that big private equity deals have virtually vanished after the credit crunch brought on by the subprime mortgage implosion.
Panelists referred to it in their remarks on Thursday — the famed return of the corporate buyer now that private equity firms can't borrow cheaply, deal multiples coming down, the emergence of more stock deals — and there was a lot of chatter about it at the cocktail reception Thursday night. But the subject was hit rather soberingly at the Friday morning session on developments in M&A financing:
- the number of deals dropping 80% in one month,
- private equity firms trying to renegotiate terms with buyers and bankers,
- while some firms are simply walking away from deals.
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"The party is over," Jamie Pierson of FTI Capital Advisors LLC said.
Stephen Hipp of Goldman Sachs Specialty Lending said leverage among companies already taken over is too high, and those that expected to grow into their capital structure with overoptimistic growth plans will suffer most. "They will strain to keep up with their debt," he said.
But there was also some encouraging news: The middle market is alive and well. Loren Willet of LaSalle Business Credit LLC thinks private equity firms will continue to go after smaller companies with smaller debt packages and there will be a lot more refinancings because companies can't sell themselves, giving him some business. "Midmarket asset lenders are going to have a great 2008. My company is counting on it, and my family is counting on it [to pay] for college," he said, which elicited some laughter from the audience. "Those who aren't skittish will do really well."
Party pooper Pierson left the audience with a dour thought, however: "It's the consumer that's driving the economy, so if they feel the crunch, it won't matter what anyone does." — Claire Poole
