Are Buyout Buyers On Strike?

Last night I had drinks with a middle-market lender, from one of those firms that still seems to be lending (albeit selectively… very selectively). It was a wide-ranging conversation, but we kept coming back to the paucity of new leveraged buyouts. The conventional culprit here is a lack of credit, but my conversant put forth an alternate theory (at least for the middle markets): Buyers are on strike.

There clearly are fewer active lenders than in years past, he said, but there are still enough to handle far more deals than are currently flowing. The real problem is at the buyout firms themselves, which have lost confidence in their own ability to appropriately price and structure transactions.

There was obviously some self-service in this allegation, although it’s not without merit. Just two months ago, I remember hearing that a well-known secondary shop had put a moratorium on new acquisitions of LBO fund positions, because it did not believe it could adequately value the underlying debt levels. Most other firms haven’t been nearly so blanket, but the notion of a buyer’s strike intrigues me… What say you, dear reader?