MacFadyen: InterGrowth Buzz II
May 13, 2009
"Eyes closed, nothing but net" -- it can work in a game of HORSE, but deal pros are much less inclined to take any blind shots. At InterGrowth Wednesday, I had the chance to moderate a panel focused on the challenges facing buyers today and the recurring theme was visibility, or lack thereof.
Moelis & Co.'s Jeff Raich perhaps summed it up best. "It's just a brutal deal environment. The lack of financing, the lack of visibility in earnings is manifesting itself in a substantial gap between what sellers are willing to take and what buyers are willing to pay."
Skadden Arps' Brian McCarthy echoed this point. "From the corporate side, companies are trying to get rightsized for the new world order, but they don't know what the new world order is -- is 80 the new 100? Is 70 the new 100? They just don't have any visibility into their business."
The problem with all this is that there isn't any easy solution. 3M Co.'s Mark Copman offered that some certainty can be found in the urgency underlying a particular situation, whether it's on the part of the buyer or seller. He identified three criteria he looks for, pointing to companies "in extremis," the potential for competitor interest in a particular set of assets, and whether or not the target will "be more expensive tomorrow."
The panel was in agreement that an offshoot and partial solution to the visibility problem will be more complexity. While few favor earnouts, other solutions include more seller paper, "residual equity" payments, or minority stake deals with a path to ownership.
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