According to the KeyBanc Mezzanine Debt Quarterly Newsletter, capital levels remain high. Over 65% of issuers surveyed in the newsletter have more than $50 million in available capital and nearly two-thirds have more than $100 million. The amount of capital that is currently available is a strong signal for ongoing growth in deal flow.

Along with the available capital, leverage multiples are increasing across the industry. Additionally, more providers are willing to take on a second lien, showing a loosening in lending standards.

Overall, it appears that mezzanine debt is on track to continue increasing deal activity for the foreseeable future. Despite the fact that funds have struggled to keep up with the deal flow, the amount of capital available and easing lending practices indicate further growth.

 Q1 2012 Theme – “Meeting Goals”

Based on survey results, SDR notes most of our clients and contacts years are going as planned, if not better.  A staggering 67% of respondents are on target with their plan, while 8% are ahead. Additionally, 5% of respondents reported that they were struggling to meet their 2012 plan while the remaining 20% reported not having one.

Last quarter’s poll showed that a strong majority of our clients and contacts are hiring, so these poll results show signs of the economy gaining steam. It seems as though things are looking up for 2012.

One of the approved banks has already made an acquisition of a retail bank network in the U.S. The approvals mean more acquisitions like this could be on the horizon. In the nearer-term, the arrival of the Chinese, government-backed institutions mean another competitor in the field of small business and commercial lending.

For China, this represents another step in an ongoing effort to gain exposure to international investors. To read the full story in the Wall Street Journal, click here.

According to Karlgaard, the U.S. desperately needs to return to 4 percent growth, and that it’s not out of the question. He reminds readers that the U.S. economy has averaged 3.3 percent growth since the end of WWII, including recessions. When the economy is not in recession, growth has remained at 4 percent.

So what do we need to do to achieve 4 percent growth? Several imperatives are outlined in the article:

First, we must limit government spending. GDP growth is very closely tied to spending and the difference of just a few percentage points can have an enormous impact on the economy. The best growth will happen when government spending is around 18% of GDP. Now under Obama, we’ve reached 24%.

Next, Karlgaard suggests simplifying the tax code. It’s no mystery to anyone what an issue the tax code is. Then, he mentions the importance to digging and drilling for energy. We must be able to fuel our economic engine – literally.

The article also points out the importance of importing highly skilled workers. Our immigration system currently favors the opposite – uneducated and undocumented workers. Meanwhile, those who attempt to navigate the system legally are tied up in endless paperwork and bureaucracy. The brightest students simply go back to their home countries when their student visas expire.

Finally, the author suggests leveraging our technological capabilities to drive innovations in education and healthcare. We have systems that could facilitate teaching, communications and healthcare solutions efficiently, across distances and for minimal cost.

There is no doubt that the U.S. has the ability to return to 4 percent economic growth. All of these solutions are perfectly achievable, given the right direction, leadership and innovative thinking.

Click here to read the full article on Forbes.com

The worst of the recession may be behind us, but banks aren’t done tightening and adjusting their processes as a result. For a business owner, this could mean losing a line of credit that has been a reliable source of capital. Now as much as ever, banks are carefully examining credit lines and more often are opting not to renew them.

Denver Business Journal reporter, Heather Draper, goes in depth on this issue in her recent article, “Colorado creditors are reaching the end of the line.” One of the reasons she cites for the increasing number of un-renewed credit lines is the real estate that often serves as collateral. With the real estate market still slow to recover from the financial crisis, banks are wary to take on this type of risk.

Business owners should be aware and proactive if relying on a line of credit for regular cash flow. If your credit line is coming up for renewal, don’t assume that it will be automatic.

Draper’s article in the Denver Business Journal can be found here.

It makes sense that a high level of cash going after a small number of quality deals would drive up sellers’ expectations and the ultimate price of a deal. There is certainly no shortage of capital in the market to seize upon quality opportunities. Private equity firms are aggressively pursuing transactions.

In a recent white paper by Merrill DataSite, Michael Littenberg, partner at Schulte Roth & Zabel, was asked his opinion on the issue. He said, “If you’re dealing with opportunities that are being formally shopped around by investment banks, I think that’s 100 percent right.”

Littenberg goes on to say, “As a buyer, whenever possible, you want to avoid a formal bidding process…The flip side of that of course is that savvy sellers often would rather have their company shopped around to maximize price. Smaller opportunities often come to buyers directly through their network, and many niche targets are strategic to a small universe of known buyers.”

You deserve it, after all. You struck out on your own, lifting the anchor and raising the sails. While everyone else is slaving away 50 plus hours a week in cubicles or dingy offices, you set your own rules. You work when you want and play when you want. There’s no answering to any “man.” You are “the man.“

Who knows? With any luck, your idea will catch the eye of a Fortune 500 corporation and you’ll find yourself on the receiving end of a multi-million dollar deal. All it took was a little creativity and charisma. It’ll be the easiest fortune you ever made. Meanwhile, everyone else will still be sweating away in the daily grind.

Right, entrepreneurs? In reality, I suppose it’s a little less romantic. A 50-hour week for many small business owners might sound like a dream. And when it comes to being cash-strapped, nobody knows the feeling like a business founder. Luxury hotels and pre-flight cocktails are hardly in the budget. The life of an entrepreneur is certainly rewarding, but may not be as dreamy as some might think.

That’s the first thing that came to mind when reading a recent Forbes.com blog, touting a new discount card that helps entrepreneurs live the lifestyle. FoundersCard, with its $500 annual membership, provides discounts on airfare, hotels, cabs, business technology and more.

The author begins the piece by asking, “Do you have dreams of becoming an entrepreneur, founding your own startup and jet-setting across the country to meet with investors?” Ah, yes. The entrepreneur’s life.

Those who find themselves a little closer to the truth know that reality is somewhat different. There’s no doubt that successful entrepreneurs are very fortunate. The work it takes to build a business can be extremely rewarding. But you don’t get to be successful without a great deal of toil, stress and penny-pinching.

But then again, why correct the image? Let them believe you’re living like a television entrepreneur. While you’re mulling insurance, legal fees or government regulations, let them imagine you smiling over a martini. After all, while you’re waiting for that multi-million dollar deal, you might as well be living it in someone’s imagination.

The PMI monthly figure (yellow line) showed gains from its February mark of 52.4, to 53.4 in March. This signals the 32nd consecutive month of growth for the manufacturing sector. More than 80 percent of the manufacturing industries included in the survey reported growth during the month of March, suggesting a broad base of recovery.

The PMI 1/12 rate of change (green line) also climbed upward in March, showing positive signs for continued economic drive and industrial production. Altogether, these gains indicate positive trends for the U.S. economy for the remainder of 2012.

Source: Institute for Trend Research

Small business credit can be too hot, with lenders providing too much financing, or it can be too cold, with too little available. The Fed’s job is to get the amount of credit just right, ensuring that the banks provide creditworthy businesses with the capital they need while denying it to those that are too weak to handle the debt.

 

The Fed believes that small business lending was too hot before the financial crisis and many small business believe that small business lending is currently too cold. As evidence, the National Federation of Independent Business noted in a recent lending survey that “more small employers were shut out of the credit market [in 2011] than in prior years.”

While I haven’t found evidence of admission from Bernanke and crew that small business lending has been cooled too far, Shane presents a convincing tally of datasets that evidence the pendulum swing from hot to cold:

• FDIC figures reveal a 39 percent decline in the number of loans under $1 million to businesses (a proxy for small business loans) since June 2007.
• FDIC figures confirm that the current level is the lowest since 1999, when the U.S. had almost 1 million fewer small businesses than today.
• FDIC figures show that the real dollar value of commercial loans under $1 million actually decreased 17 percent from 2009 to 2011, while the number of loans declined 8 percent.
• In the Wells Fargo Small Business Survey, small business owners report that credit was hard to get during the previous 12 months and will be hard to get over the next 12 months as made that claim at the end of the recession.
• A recent National Federation of Independent Business study indicates that only half of respondents received some or most of the credit they needed in both 2011 and 2009.

Mr. Brown noted that Corporations will be looking to grow their top and bottom lines in 2012 – but not only by organic means, as we’ve seen the last few years. Brown believes that this year, Corporations will increasingly look for quality acquisitions to help drive this growth.

On the private equity side, Brown mentioned that pent-up deals might result in a flurry of activity this year. With multiples rising, private equity groups will be looking to sell businesses that they’ve been holding longer than intended. And with a significant amount of capital on the sidelines, investors will be looking for opportunities to deploy some of that capital.

According to Mr. Goodrich, a strong year can be expected in the M&A market from both owner-sellers and private equity sellers. Goodrich said that private equity groups typically jump in sooner than business owners, but he doesn’t expect the latter to be far behind.

For more information on this panel discussion, visit AxialMarket.com.