Observations from ACG Intergrowth 2013
Below are a few of our observations from the Conference:
- General Market Perceptions: Generally speaking, almost all attendees remarked that the first quarter of 2013 had been dreadfully slow, most likely driven by the drive to get transactions closed in the last couple of months of 2012 to take advantage of a lower tax environment. However, some investment banks (including CMM) are experiencing higher-than-usual pitch activity which is a good leading indicator that deal flow will be strong in the second half of the year.
- PE Firms are anxious to invest. While most are considering opportunistic exit
strategies, the funds with whom we spoke are more focused on continuing to invest their existing funds into new platform companies and synergistic bolt-on deals. While volume of opportunities has been relatively stable, the pipeline of quality companies for sale continues to be weak, especially in comparison with the fourth quarter of 2012, which was one of the best quarters in the last five years. There is no doubt that higher quality companies are fetching healthy valuation multiples.
- Traditional Banks that had severely tightened their lending standards during the economic slowdown have recently loosened their underwriting criteria. In addition to today's historically low interest rates, many participants commented
that traditional lending ratios for high quality companies are close to the record levels of 2007. However, smaller and under-performing companies continue to find the lending markets challenging.
- Non-regulated Lenders continue to proliferate and be aggressive in the market. These lenders grew in importance recently when most banks withdrew from middle market lending and are now major players in middle market finance. We noted significant creativity around deal structures (including: unitranche, second lien, pure cash flow, credit opportunity and special situation lending) and their flexible pricing depending on a company's particular situation.
- Large Corporations are intensifying their search for acquisitions to fuel growth and maintain competitiveness. These strategic buyers continue to hold record amounts of cash on their balance sheets and are aggressively looking to put that capital to work with synergistic acquisitions.
Based on these observations, we would recommend business owners
consider the following:
- Prepare now: With both equity funds and strategic buyers flush with cash and motivated to purchase, business owners should prepare to be approached. "Luck favors the prepared" so start to prepare for due diligence now.
- Consider Timing: Investors and buyers could be inundated with new mandates later in the year which may shift the market from a sellers market to a buyers market. It is simply a function of supply and demand. Timing of your approach in the market has to be well designed and thoughtful.
- Get advisors involved early: Accountants, lawyers, wealth advisors and investment bankers should be brought in early to help plan and prepare the company for a transaction. Often times, real value is destroyed because the owners engage their advisors too late in the process. By engaging them early - ideally several months before a transaction - they can help increase both the after-tax proceeds and the certainly of a successful closing.
Please do not hesitate to call us if we can help you consider, plan, prepare, and ultimately execute a successful transaction.