That’s the mantra I’ve been hearing from PE pros desperate for deals. Sellers want to sell, half of the bankers don’t have any deals to do, and the other half is holding its bounty of sale books hostage. There are bankers out there with literally shelves filled with books, they say.
Why aren’t willing sellers on the block? One reason is that some bankers and shareholders just want a company’s manager to focus on carrying the company through the recession without the distraction of an auction, said Robert Berry, Head of M&A at mid-market investment bank Raymond James. Further, they don’t want the company to be “tainted” by a failed auction process, as so many have been pulled from the auction block. “They could blemish the reputation of a company if its shopped widely and then taken off the market,” he said.
Even so, shareholders are more willing to have conversations about a sale than they were six months ago, he said.
There’s a new set of targets creeping closer to the market, Berry said. He’s seen some cases of family-owned companies considering liquidity events to get lenders off their backs. The companies had some debt but weren’t highly levered before the recession. They are still healthy, but their revenues and Ebitda have dropped, causing their leverage ratios to skyrocket. This leads to tripped covenants and a barrage of harassment from bankers. “Modifying covenants is expensive and they are just fatigued by dealing with the banks,” he said. These kinds of companies are interested in minority recaps, where private equity firms can inject more capital.