A few weeks ago, we spoke to Stefan Shaffer about how COVID-19 affected US Private Debt access. In these unprecedented times, we know how quickly things change, especially in the finance sector. Here’s an update of how debt and equity markets in New York evolved.
Managing Partner and Principal, New York
Right now we’ve had the benefit of the payroll protection program work its way through the system. A lot of companies have their interim funding. Now the markets beginning to get back into its “new normal” context.
Here are our key observations:
- We’re seeing deals being actively worked on
- There were certain participants in the market who aren’t as involved as others
- Some people are looking at deals and processing transactions
- Timing is a bit attenuated again as we mentioned last week
- Pricing is slightly higher as it always happens when there’s dislocation in the market and multiples have become more conservative
COVID-19 Impact on Mid-market and Cross-border M&A
As Eaton Square is largely involved in the mid-market space, we wanted to know how this environment is affecting M&A and cross-border deals.
M&A has lesser activity with very few deals bringing brought to the market if any. The exception to that would be smaller tuck-ins that are not subject to a competitive auction.
There are certain industries that haven’t been particularly impacted by COVID-19. Engineering, IT are few sectors that are still relatively active. There may not be a lot of activity now but the processes for these companies are still starting.
Large disparity among lenders respecting their liquidity
I think the markets are divided into three groups:
- Active–The first group is very active. They tend to be in large part responding to a mandate from the federal government so commercial beats which are overseen by the Fed the OCC and the FDIC have a mandate to get liquidity into the system. So they’re very active and they’re not as busy as they were let’s say a couple weeks ago where they were really dealing with you know administering the payroll protection program. So now they can focus on MainStreet debt and everything else. So that’s one group that’s very active right now.The Small Business Administration has kept liquidity in the SBICs or small business investment companies as well in large part again a federal mandate to keep liquidity in the system.
- Inactive–This group is relatively inactive and they’re going to be an active and on the sidelines at the time being. Those would be publicly traded funds business development companies for instance which had to take certain marks with to their portfolio or mark down the equity investments in their portfolio and to the extent they’ve marked those investments down so dramatically that they’ve actually sort of gotten upside down on in their debt to equity ratios. They just simply don’t have the access to the liquidity lines that they might otherwise have and so they’re sort of out of the market.
- Middle—The third group is in the middle. These are institutions that are not active right now. They’re dealing with their portfolio but by the same token there going to be opportunistic. So if there’s an opportunity to get a significantly higher yield than they might otherwise or get into a much better position in the capital structure though they’re still active there. And those are the sort of three constituencies that we see right now.
*Securities offered through SPP Capital Partners, LLC: 550 5th Ave., 12th Floor, New York, NY 10036. Member FINRA/SIPC.