Pillsbury’s David Ingles and Joel Simon join The Deal in this webcast.
It’s no secret that money has been cheaper than ever before during the past year as governments across the globe attempted to ensure a smooth recovery from the economic effects of the Covid-19 pandemic. The ease of obtaining financing has played a role in record M&A deal volumes between July 2020 and June 2021, totaling more than $1 trillion in each of the past four quarters through the end of June. To start the fourth quarter, however, the world’s leading central banks have signaled that they will start to phase out the policies that have allowed households, companies and governments to borrow at incredibly favorable rates. Assuming the momentum in the M&A market continues, market participants will likely need to adjust their playbooks over the next several months as financing becomes more expensive.
For sellers, advisers will certainly emphasize stronger scrutiny of buyer’s financing commitments, and cash-on-hand offers may become even more competitive. Meanwhile, buyers will surely be even more squarely focused on negotiating borrower-friendly loan agreements and pay greater attention to lender protections in loan documents. When negotiating with sellers, purchasers will continue to look closely at add backs to EBITDA as they try to squeeze back value lost to higher pricing in loan agreements. The acceptance of EBITDA-C, or earnings before interest, taxes, depreciation, amortization and Covid, as a valuation metric is expected to soon become a thing of the past. As the world’s businesses focus more and more on becoming sustainable, ESG objectives, too, will become increasingly more common in credit and purchase agreements.
With these changing tides, 2022 may bring great uncertainty. This discussion covers the following questions:
And will alternative M&A financing methods grow in popularity as traditional lenders tighten their purse strings?
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Carolyn Hastings, Managing Director, Credit, Bain Capital Credit
Claire O’Connor, Managing Director and Head of Loan Capital Markets & Acquisitioni Finance, Barclays Capital
Nayef Perry, Managing Director, Direct Credit Investments, Hamilton Lane
Marissa Mann Andrews, Vice President, Saratoga Investment Corp.