The Winning M&A Advisor [Vol. 1, Issue 3]
Welcome to the 3rd issue of the Winning M&A Advisor, the Axial publication that anonymously unpacks data, fees, and terms…
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The first quarter of 2015 is in the history books and has left many people scratching their heads, asking the same question: âwhereâs the deal flow?â As the person responsible for leading our firmâs business development efforts, I am particularly interested in the causes and effects of deal activity and other market conditions. Here are some of the facts that have caught my attention:
As of mid-March, data provider Dealogic tracked just $19.9 billion worth of deals globally, down 53% from $42.7 billion in the same period in 2014, and the lowest amount on record since 2002. The drop is particularly dramatic in the US, where deal making has only reached $7 billion for the year, about a third of the $22.1 billion a year earlier. The data is even more compelling when considering that 34% of the year-to-date volume in the US is attributable to just one deal: Bain Capitalâs $2.4 billion secondary buyout of Blue Coat Systems Inc. The slowdown in M&A hasnât only affected private equity sponsors — the slowdown also affects investment bankers, lenders, attorneys, consultants, and accountants.
The data is even more compelling when considering that 34% of the year-to-date volume in the US is attributable to just one deal: Bain Capitalâs $2.4 billion secondary buyout of Blue Coat Systems Inc. The slowdown in M&A hasnât only affected private equity sponsors — the slowdown also affects investment bankers, lenders, attorneys, consultants, and accountants.
To prepare for this column, I surveyed over fifty lenders ranging from banks, SBICs, BDCs, and hedge funds. The questionnaire contained ten questions and sheds a spotlight on the state of the middle market for lenders. The overwhelming sentiment from these lenders was that the quality of deals in the pipeline is âbelow average.â
When asked the quantity of deals in the pipeline, most lenders answered âbelow average.â Surveyed groups issued an average of 9 term sheets over the past 3 months. Most non-bank finance companies closed two deals in the past 3 months. Not a single survey participant responded that these levels were âabove average.â
Here is some additional commentary from some participants:
How would you describe the current state of the debt markets?Â
What are you watching most closely in 2015? What do you think could help the debt market? What do you think could hurt the debt market?
How does your firm try to distinguish itself from the competition?
So what does all of this mean? First, itâs a great market to raise financing. A combination of low cost and borrower friendly terms and conditions mean that companies should take advantage of this favorable market. Second, really get to know all of your financing options. Traditional senior lenders like banks have become more restricted in the types of loans they can make and the types of companies they can lend to. Other non-bank forms of financing have proliferated since the credit crisis and companies need to know about all of their options. Third, not all specialty finance companies are the same. Get to know your potential partners. How have they behaved with other borrowers when bumps in the road are hit? Do they create value beyond providing capital? This is a market where everyone expects more. Expect the same from your financial partners.