Randy Schwimmer, of Churchill Financial, offers good insight into 2011 expectations for middle-market deal flow in his latest news posting. Here are the key points he makes (note in particular his comments about the “value gap” in the sixth paragraph:
Is it too early to be disappointed in 2011 deal flow?
The question occurs to us, even though it’s only mid-January, because primary issuance has been strangely quiescent.
One of our readers – an advisor to a top PE shop, with decades of deal experience – suggests that sellers started working before last November’s election to beat an expected tax deadline. By the time Congress cut the final tax deal on December 16, it was too late to stop some of those transactions, leading to a “one-time surge” in the 4Q.
Of course with [lots of] cash, and few new deals in the offing, investors are all dressed up with no place to go…except the secondary market.
So how long will it take for all this good news to reach the buyout world?
A savvy investment banker friend speculated that the value gap that kept buyers and sellers apart last year may be persisting. Sellers are bullish about earnings prospects for 2011, so are insisting on higher price tags. Buyers, though, remain skeptical of management projections, not wanting to pay up for trends that may not prove out.
If so, what gets PE buyers off the schneid? A nice run-up in equities, says our deal guru. The M&A game is all about building confidence with investors, he says, and 12,000 on the Dow could do the trick.
But there’s been a lot of blood under the bridge. Real confidence may take more time to return than people think. And that assumes no nasty surprises, like a muni bond scare.
Posted by John Hammett