The financial system and most banks have plenty of liquidity, even with a recent uptick in line of credit usage, says Paul Carlisle, COO of WinTrust Financial Corp.
“There's still a lot of money on deposit,” he says. “There's still a lot of folks waiting for full forgiveness for their PPP loans before they make any significant distributions out of their companies, so you've got banks sitting on a lot of liquidity. And at the same time, you've got a significant amount of demand from buyers out there to finance capital transactions. That combination has resulted in very much a borrower's market from both a structural basis and a pricing basis.”
This, he says, has intensified through the course of this year. In particular, he says the bank has seen structural terms, amortization terms for example, deals that ordinarily would be reserved for companies of $10 million in EBITDA or more drift down into the sub-$10million and even sub-$5 million market.
“Most transactions can get done and they can get done on fairly liberal terms,” he says.
Both bank and non-bank lenders are active in the current market, which he says means it’s a great time to do a deal, from a financing standpoint. Even though high multiples are making it expensive to get deals done, most deals have a number of different financing options and competition is extremely strong.
Banks and non-bank lenders are also finding ways to work through companies’ COVID year as they determine which M&A transactions they’ll finance. Carlisle says they’re setting out to normalize as much possible the impacts of the pandemic on company balance sheets. To do so, many people are drawing from their time as lenders during the Great Recession, which means they’re familiar with making those kind of adjustments. However, what's different here, he says, is in some cases they're adjusting downward.
“A number of businesses did extremely well during the COVID time period and we're affected positively,” he says. “And so our normalization of earnings and of cash flow involves, in some cases, rounding those numbers up, and in some cases, taking those numbers down to reflect what we think is sustainable going forward.”
The Delta variant surge, or fear of it intensifying, doesn’t seem to be slowing M&A down.
“To some degree, the market has adjusted to the fact that this is going to be present for longer than we thought and they're going to be ebbs and flows,” he says. “I don't see that as impacting deal flow or financing in the short run.”
Carlisle spoke on the Smart Business Dealmakers Podcast about the challenges facing the market, the state of capital, and the conditions dealmakers could expect for the remainder of the deal year. Hit play to catch the full discussion.
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