The Middle Market Landscape has Remained Resilient

The news is replete with stories about the state of the economy: bank failures, the credit crunch, and the probability of a capital gains tax increase.  Despite the concern for the market overall, middle market M&A deals have remained relatively strong.  This can be attributed to many factors:

• Private Equity Groups (PEGs) Raised a Record Amount of Capital in 2007:  A record $ 309 billion was raised in 2007.  This is in addition to the over $1 trillion of committed capital they also hold.  Orion Capital Group can help you connect with investors who are willing and able to take your business to the next level.
• Weak U.S. Dollar:  The favorable exchange rates make the U.S. business attractive to international buyers.  Previously, fewer international buyers entered the market due to the high transaction costs.  While this remains true today, there is increasing interest from international buyers.
• Corporate Buyers:   Corporations remain dedicated to boosting profits by acquiring robust, efficient companies. 

Act Now:  Start Preparing Your Exit Strategy, or Go to Market Now

Regardless of whether you are ready to engage Orion Capital Group today to take advantage of the market before this cycle ends, or whether you would like help implementing a strategic plan to increase the value of your enterprise for some point in the future, we can help.  The important point is that you have a plan, regardless of when the plan is to be implemented.

What Will Happen in The Future?

• Capital Gains Uncertainty:  There is a large chance that the capital gain tax rate will increase from 15% to its previous level of 28% or even higher.  This will decrease the net profit sellers will receive at the completion of the M&A transaction.
• Stability of Credit Market:  Without doubt, lenders have become increasingly risk-averse.  However, for companies with strong financials, lenders have continued to extend credit.  Valuations have decreased in situations where the transaction is highly leveraged.  Moreover, the Fed may increase interest rates, further increasing the difficulty in utilizing debt.
• Inflation:   The market, especially the consumer market, has been impacted by higher inflation.  As to middle market mergers and acquisitions, increasing inflation means debt has become more expensive.  This can be tempered by connecting to buyers willing to use cash/equity to finance deals.