InSight

Exit and Growth Strategies for Middle Market Businesses

Capital For Business

By Peter Moore | Sep 06, 2011

It’s Always About Access to Capital

Whether you are a start-up entrepreneur, a growth oriented middle market company CEO, or a seasoned company owner seeking an exit sale to ride off into your retirement sunset – access to capital for business is and should be a topic about which business owners will be rewarded for maintaining a regular and up to date awareness.

Money LendingThe struggling start-up entrepreneur is generally forced to cobble together his own personal resources, those from willing friends and family, a helpful angel investor or two,  a few economic development agency grants and Venture Capital funding for those “lucky”  1% or 2% who are deemed worthy. It’s a tough environment, even in the best of situations, and most hope that their success allows them to never look back at raising capital.

But not so fast – the battle rages on, albeit with different metrics. Economic cycles wreak havoc on the best laid business plans. Growth oriented companies must duke it out with banks over LIBOR spreads, demanding collateral coverage, constraining loan covenants, and mezzanine funding warrant coverage.

If you made it through these first two gauntlets and start breathing easy – watch out. When it’s your time to sell the pride of your 20-30 years of growing, nurturing, surviving and maybe even tasting prosperity – navigating through the capital markets access waters once again will most likely determine your future financial condition.

Today’s lower bank debt leverage limits means higher equity funding as a percentage of total capital. This creates a higher overall cost of capital for today’s business buyers vying for your prized company. It’s now not what you want to be paid but more a matter of what “they” can get financed, that has a lot to do with the purchase price for the company you’ve spent half a lifetime building. The competition in the middle market investment banking arena is fierce. Capital is available and some say abundant, but the providers are picky and discriminating, if not downright scared.

If you’re a company CEO, an M&A Advisor, the regional bank VP, or the target company buyer, staying tuned in to the ever changing requirements of corporate finance capital providers will help you avoid surprises and be better prepared for their demands when those needs inevitably arise.

 

 

  

Posted by Peter Moore.


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