Posted by Cooper Mills on December 28th, 2011 |
No Comments » CHILDS is receiving a substantially increased number of sale inquiries from owners across all our specialty areas including IT Solutions, IT Consulting, Healthcare Consulting, Marketing Services, Human Resource Outsourcing, and all areas of staffing. My guess is that the last economic downturn was so severe and financially threatening that owners thinking of taking chips off the table don’t want to miss this cycle and for high performance companies buyers are active.
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Posted by Jimmy Secretarski on December 28th, 2011 |
No Comments » It’s a fairly common misconception that people-based businesses, such as IT Consulting or Professional Services companies, cannot raise debt. “There’s NO WAY!” “Their assets get on the elevator every day.” “Their balance sheets don’t offer any collateral, therefore leverage won’t work.” And I reply to these naysayers: FALSE!!
While the conventional credit model points out that they lack significant asset levels (except for A/R) on their balance sheets, there is a market out there for cash flow-based lending beyond the A/R based revolvers. With the exception of one transaction this year, every deal we have closed has had some sort of debt in the capitalization. The range has been between 2-4x LTM EBITDA and the pricing has been LIBOR + 500 bps all the way up to twice that (LIBOR floor at 125-150bps).
An interesting dynamic, or observation, is how the traditional senior/sub structure and respective lenders are now competing with “unitranche” players. Unitranche is essentially a blended debt structure which combines the elements of both by providing a note with a slightly higher rate (akin to mezz returns) with senior preferences and rights (akin to senior debt), while being a single voice and throat to choke:)
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Posted by Alan Bugler on December 27th, 2011 |
No Comments » Despite broad economic uncertainty fueled by sluggish economic growth, high unemployment, and sovereign debt concerns both domestically and throughout Europe, M&A transactions have continued at a healthy pace in 2011. Transactions ranging from $50-$250 million in value continue to show strength and increased 9.6% in volume and 11.0% in deal value year-to-date 2011 versus the same period in 2010. This activity has been led by multiple drivers, including:
1. Strategic acquirers are flush with cash and focused on supplementing weak organic growth with strategic acquisitions
2. Private equity firms have over $400 billion in “dry-powder” to deploy and have been actively searching for investment opportunities
3. Lending markets have been receptive to supporting M&A activity
The Federal Reserve reported earlier this year that Corporate America (excluding financial institutions) held more than $2 trillion in cash and other liquid assets at the end of June 2011. Much of this capital was amassed through the recession as companies restructured and cut costs. Although there is still uncertainty in the market ahead, strategic acquirers drove the majority of M&A activity this year accounting for approximately 80% of all transactions.
While the number of private equity transactions slowed in the 3rd quarter versus the 2nd quarter, activity has remained stable. With over $400 billion in committed but un-invested capital combined with the receptive lending environment to private equity-backed buyouts, there is a strong footing for continued growth. Private equity M&A activity continues to be driven by middle market investments where transactions under $250 million accounted for 73% of all private equity deals year to date 2011.
Despite the difficulty many small corporate borrowers have experienced, the debt markets for middle market acquisition financing remain very active. Total leverage multiples (Total Debt/EBITDA) increased in the 3rd quarter of 2011 to 4.6x, up from 4.4x in the 2nd quarter. In 2009, the average leverage multiple was 3.2x. In this market (which is defined as issuers with less than $50M in EBITDA), lenders are still requiring at least 40% equity contribution from equity sponsors in leveraged buyout transactions.
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