The Alternative Pipeline

We noted last week the state of play with the Fed’s battle to slay the inflation dragon without also cratering the entire village. The prospect of increasing spreads on top of a five percent-plus benchmark rate has dampened enthusiasm for M&A and financings.

Nevertheless we find private equity sponsors in the traditional middle market space remaining constructive around opportunities heading into next year.

Experienced buyers have long-established strategies buying and building businesses with high growth potential. They are guided by senior operating executives who layer add-on companies onto platforms at lower purchase price multiples, bringing down the effective overall entry cost.

These companies tend to be in less-cyclical B2B arenas such as healthcare, business services, technology, software, logistics, and distribution. Here prospects for revenue and cash flow growth remain healthy with valuations still at the level where sellers have not despaired of achieving their asking price.