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Moderated by Steven Elek III, a partner in PricewaterhouseCoopers' Healthcare Transaction Services group, the panelists agreed that the roiling equity markets and tight debt markets would constrain dealmaking.
Kenneth W. Hitchner, the head of Healthcare Investment Banking at Goldman, Sachs & Co., expects "the equity markets will continue to be volatile through 2008; although there will be opportunistic times ... from an M&A perspective, we're seeing increased creativity from private equity firms [as they deal with the tight debt markets]. We are seeing a lot of activity, especially in deals where you don't need access to the debt markets."
Welsh Carson, Anderson & Stowe's co-founder Russell L. Carson agreed: "I don't think we want to do anything today that's reliant on capital markets to close. There won't be a lot of $5 billion-plus deals by private equity firms until the credit markets unfreeze, and I don't see that happening this year." And although buyers are unable to get leverage for deals, Carson said that sellers are still hoping for high multiples for their companies. "There's still a disconnect between prices that buyers will pay and what sellers are expecting," said Carson. "It takes a period of time for reality to step in; there's a six to 12 month lag [for valuation expectations to coincide]." But for deep-pocketed buyers that don't rely on debt markets, the current environment is a golden opportunity, according to Michael Boublik, co-head of M&A-Americas at Morgan Stanley's investment banking division. "The big strategics view [the credit crunch] as a great opportunity for themselves and are ginned up for deals. The difficult credit markets are making it even easier for companies that don't need to access them. Many of these companies are cash-rich, and they're viewing it as a chance to use their cash, while private equity is not as active in the market." Indeed Boublik said that Morgan Stanley is "seeing a very high degree of activity, but we're also working on lower probability transactions, and the trick is to get that activity to the finish line. " "The universe has switched as people are squeamish about going to the private equity buyers for sizable [$5 billion-plus] deals because they're worried about getting the financing done. Corporate buyers are seen as giving sellers the best bet that a deal will get done, but it's still a skittish market," he continued. Buyout shops being confined to the sidelines was a sentiment of Todd Sisitsky, a partner at TPG. "I think private equity is at a competitive advantage, because we have capital, and we can move quickly. I think we're going to see a lot of deals, especially on the services side." While Sisitsky noted how "having access to the capital immediately and the ability to move quickly is very important to a [seller's] calculus ... we'll continue to see activity from private equity, but through relatively unlevered deals." "Activity will look more like its did in 2005 and before," Sisitsky continued. - George White Categories Deal Video
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