I just finished participating in a panel discussion called Pulse of the Middle Market, which was hosted in the Boston offices of law firm Edwards Angell Palmer & Dodge. Pretty dour session overall, but very well attended (after all, it’s not like people have deals to work on). Here’s a few quick notes I jotted down:
* When it comes to leverage multiple, six is the new nine.
* “Uncertainty is worse than bad certainty.” – Lee Tesconi, a partner with Lexington Partners (as relayed by Lane MacDonald of Harvard Management Co.)
* Typical buyout funds are down between 6% to 9% for the September marks. They’re expected to keep going lower, but not nearly so low as public equities.
* Not only are LPs concerned about the existing denominator effect (overall portfolio value drops, thus illiquid PE exposure rises past allocation levels), but that the effect will be exacerbated by VC and buyout firms that keep drawing down capital faster than they provide distributions.
* I got asked if the BCE buyout will close. I said probably yes, but immediately regretted it. Then I read this, and felt better.
* There was recently an academic paper arguing that broadly-syndicated corporate loans were worse for the issuers than more narrowly-syndicated corporate loans. Gotta find it, particularly given that broad syndication was a hallmark of the ’06-’07 leveraged buyout boom.
* The next credit shoe to drop may be cash-flow CLOs.
* No consensus on the best sectors for current investment. Some want to steer far clear of troubled areas like consumer, digital media and oilfield services — while others think those sectors will soon be low enough to consider. In general, make sure the company can control its operational cost structure.