James D'Aquila, a managing director with midmarket-focused boutique bank Mercanti Group, examines what lies ahead for M&A in 2008, particularly on the middle-market front, in a Deal column Thursday.
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The year will be a tough one, he acknowledges, but there are some favorable signs, particularly on the midmarket front, including: the sluggish IPO market; low liquidity among smaller companies; and a tough economy may send companies looking for buyers. He notes:
The fact is, midmarket deals as a group never commanded the awesome leverage ratios that their giant counterparts attracted, and the financial institutions that provided the financing are not among those swept up in the subprime, CDO and CLO troubles. They certainly are exhibiting more caution and require more hand holding, but the funds remain available, if at slightly higher spreads and tighter terms.
Further, he points out:
Especially interesting is that
the appetite for such transactions has not waned among limited partners
of private equity firms. True, they are being a bit more cautious and
questioning; however, they are still eager to put their money to work.
The evidence indicates that despite market conditions, new private
equity investment funds continue to form, and those with superior track
records continue to attract LPs, perhaps with a view that chaos creates
opportunity.
- The editors
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