Last week the Ephor Group team attended the ACG Southwest Conference. It was well attended (PE types are not actively working new deals); however a very somber environment. Based on the panel, roundtable discussions, and thoughts overheard here are a few takeaways that apply to small and mid-market businesses:
> The debt postures and de-leveraging is preventing deals at the debt-to-equity investment levels to 1x – 2x Ebitda compared to 3.5x turns early last year.
> Middle-market focused private equity firms and institutional investors are reserving funds for acquisition of distressed or strategic assets that can be merged with their existing platform companies.
> Many portfolio backed companies used “all their bullets” to insure their obligations and covenants were met at year-end; without significant operating improvement the next 2-3 years will be challenging for many of the average to underperforming businesses.
> “Mark-to-Market” will significantly suppress enterprise valuations until the equity markets recover
> Institutional investors are worried about inflation: they will be carefully evaluating businesses that are effected by inflationary periods.
> Much concern over the unintended consequences of new regulations, and the Stimulus Act.
> Government spending good for beneficiaries of infrastructure, but not good for small business.
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