Q&A: the credit crunch and mid-market deals

Will the credit crunch put the brakes on mid-market deals?

In a word, no. Although the crunch has affected market confidence, there is still enough money for deals ranging from £10m up to £250m and beyond to be done.
Peter Hemmington, a partner at BDO Stoy Hayward, says that plenty of acquisitions are being completed and going through on the terms negotiated prior to the turmoil seen over the summer.

Looking forward, Hemmington sees a healthy pipeline of deals, but notes that family-owned businesses in particular might be looking at prospects through a more jaundiced light.

Private equity houses still have funds they need to invest, and a number of refinancing packages are still going through, with a ‘constant stream’ of private equity exits. According to Hemmington, vendor appetite remains strong.

The situation is borne out by statistics. While the top end of the market has slowed to a snail’s pace, mid-market deals are still going strong. According to Citigroup, in September there were 243 deals worth €500m (£349m) or less, totalling €15.3bn, and only eight deals in the €1bn-plus group, totalling €13bn. Typically, the latter group is worth four times more than the mid-market sector. Citigroup reckons that mid-market buy-out groups will attract much greater investor interest as they depend less on leverage to boost equity returns.

Finally, Hemmington makes the telling point that he is still recruiting to his team because the workload remains high. There might be caution in the air, but there are still demands from corporates to get deals done.