Financial sponsors are sitting on over $400 billion in capital right now, and they’re looking for ways to deploy it
NEW YORK--(BUSINESS WIRE)--Many middle market businesses that survived the Great Recession are attractive to today’s lenders because they have the best business models and are among the best run companies in their sector, say Pete Connolly and Jim Hudak, Presidents and Co-Heads, of Corporate Finance at CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies. Connolly and Hudak discuss lessons learned and outline expectations for activity in the middle market in their 2011 Middle Market Outlook, the latest in a series of in-depth executive Q&As featured in CIT’s Executive Spotlight series (http://executive-spotlight.cit.com).
One of the biggest changes structurally since the Great Recession is that more equity is being required in transactions. Connolly explains, “When things got crazy and you looked at a company’s capital structure, some deals were getting done with as little as 20% equity and 80% debt financing. So if you hit a bump in the road, there is very little financial flexibility. The deals that we’re looking at now have much more equity in the transaction, so it’s providing a lot more cushion.”
According to Hudak middle market businesses are seeking financing for working capital purposes – hiring people, building inventories. “They’re using it in some cases to make small strategic acquisitions, while also investing in capital expenditures, but this has been on a limited scale.” He adds that there is also growth in the service-oriented businesses, such as healthcare, and many deals are being done to allow for dividend recaps.
Private equity firms are also interested in the middle market sector...“Financial sponsors are sitting on over $400 billion in capital right now, and they’re looking for ways to deploy it,” says Connolly. “I think you're going to wind up seeing more sponsor-to-sponsor deals, which could lead to an increase in M&A activity this year.”
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About CIT Corporate Finance
CIT Corporate Finance provides lending, leasing and other financial and advisory services to the small business and middle market sectors, with a focus on specific industries, including Communications, Energy, Entertainment, Healthcare, Industrials, Information Services & Technology, Restaurants, Retail, and Sports & Gaming. www.cit.com/corporatefinance
Founded in 1908, CIT (NYSE: CIT) is a bank holding company with more than $35 billion in finance and leasing assets. It provides financing and leasing capital to its more than one million small business and middle market clients and their customers across more than 30 industries. CIT maintains leadership positions in small business and middle market lending, factoring, retail finance, aerospace, equipment and rail leasing, and global vendor finance. www.cit.com