Green shoots or wishful thinking?

Dealmakers discuss the supposed economic upturn 

Dealmakers discuss the supposed economic upturn 

Dealmakers discuss the supposed economic upturn 

The economy is expected to start growing again by the end of the year, and a number of recent surveys indicate renewed optimism among dealmakers in the mid-market. Not everyone, however, is convinced.

Tim Evans, director at Catalyst Corporate Finance, says, ‘There is a lot of wishful thinking about the market. The situation at the moment is akin to a cog groaning into action.

‘There is a lack of capital, which is only just showing signs of returning. There is also a material mismatch between the price expectations of buyers and sellers, and until that gets resolved it’s going to be tough.

‘If we’re in a recovery, we’re at a very early, tentative stage. Over the next 12 months, getting M&A deals through will be like running into a strong headwind.’

Blue skies ahead

Evette Orams, managing director of Hilton-Baird, has a slightly different take on the situation, singing the praises of asset-based lending: ‘There has been a lot of negativity in the market, which has eroded confidence. Although banks are finding it hard, asset-based lenders are stepping in for businesses that can’t fit into traditional lending schemes.’

In theory, asset-based lenders, unlike banks, can afford to be more flexible and ‘they don’t constrain businesses with rigid covenants’, claims Orams. ‘One of the features of this recession is that businesses are being proactive about their funding. Before, they didn’t know whom they could trust or how to get funding, so they went down. That’s all changing,’ she says.

Evans acknowledges that there are some promising signs. ‘Private equity houses are finally getting to grips with trading in their current portfolio,’ he says. ‘Once they’ve sorted that out, they can focus on making new investments.’

Likewise, banks are now in a position to invest in deals ‘after having been previously distracted by loans to distressed business that have now been restructured or made insolvent’.

In terms of assessing the market, perhaps the best that can be said is that things are less difficult in the second half of the year than the first. ‘There are some green shoots, but it is important not to become complacent,’ concludes Orams.

In other words, there’s a long way to go.

Nick Britton

Lexus Ernser

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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