Playing Through the Pain
May 11, 2010
Judging by the crowds and the enthusiasm at InterGrowth last week, the middle market seems to be recovering quite nicely. I'm just not sure if this reflects true market fundamentals or rather an inured state that now characterizes buyers and sellers.
There's an oil spill in the gulf that has generated more curiosity than outrage. There's a crisis in Greece that for a while had all the EU members head to the bathroom in hopes someone else might pick up the check. Then there was the 1,000 point drop in the Dow Jones Industrial Average that was initially passed off as a typo.
It reminded me of an old E*Trade commercial, playing off of the drug ads, that warned of possible side effects such as "projectile vomiting, gigantic eyeball [and] the condition known as hot dog fingers."
Buyers, meanwhile, remain emboldened by improving earnings, a debt market revival (at least for strong credits), and a belief that the worst is still in the rear view. Plus, there are the artificial drivers of dealflow, as sponsors have to show some wins ahead of fundraising and business owners seek exits before the capital gains tax is increased.
These are all valid reasons for the enthusiasm. I just wonder as valuations start to creep up (in some cases, purchase price multiples are already surpassing double digits), whether buyers are too willing to overlook either the existing issues, even if they seem pretty far removed, or the likelihood that something new will emerge in the future.
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