Tuesday, September 02, 2008

Credit Crunch Impact on Middle Market M&A

The credit crunch is being felt by middle market merger and acquisition deals according to emails I received today from both Bank of America and W.Y. Campbell & Company.

Here are five key points I gleaned from these two newsletters:
  • Purchase price multiples have declined to 6.8 times EBITDA (earnings before interest, taxes, depreciation and amortization - a proxy for cash flow) from a peak of 8.8 times EBITDA in the third quarter of 2007.
  • Acquisition leverage has declined with senior cash flow loans down to 2.5 to 3 times EBITDA from as much as 3.5 to 4 times EBITDA from 12 months ago.
  • Asset based loans are playing more of a role in financing acquisitions as lenders are becoming more conservative in underwriting criterion.
  • While benchmark rates such as Prime and LIBOR have declined in the last year, credit spreads have increased as much as 200 basis points for mid range middle market acquisition loans.
  • Equity injections by buyers are now approaching 40% of the purchase price compared to approximately 30% in 2006 and 2007.

Need help finding the right lender for your acquisition financing? Read "Matchmaking for Business Loans" and give me a call!

Tags : Bank of America , Capital Eyes , W.Y. Campbell , EBITDA , acquisition loans , credit crunch , asset based loans

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