As we began 2011, we took a look into a myriad of crystal balls, dealt tarot cards and spoke to many soothsayers to see if we could determine what the future holds for the coming year with regard to the private company capital markets for such things as raising capital, selling or buying a company.
Overall the expectations indicate that we should see a slight improvement in 2011 over 2010, which might not seem like a great story, but at least it’s a step in the right direction. Here are some of the expectations for 2011:
- Many of the surviving banks will be looking to increase their lending in 2011, as older loans have been paid down (or written down), and they have to put money to work. However, underwriting policies have not eased up, personal guarantees will be mandatory in most cases and banks are still very selective over the industries that they lend to (Yes, this means that land development loans are still not in available!).
- Interest rates are expected to rise by the end of 2011, although only by 0.5 percent during the year.
- Bank lending for business acquisitions has increased from the lows of 2009. This has mainly impacted the larger deals (>$50m in value),but these trends tend to flow down the food chain, so we expect there to be more availability to finance larger portions of smaller deals. This should result in a continued uptick in business valuations at the smaller end of the market, albeit a small uptick.
- Business valuations for companies in certain industries have already seen large increases. In particular, ‘hot’ industries that are likely to remain of interest in 2011 include telecom, technology, media, chemicals, energy and healthcare. Real estate, construction and agriculture remain towards the bottom of the list in terms of deal interest.
- Private business owners are optimistic about growth, with 79 percent of those surveyed expecting to see growth opportunities in 2011.
We certainly hope that 2011 is at least as good as expected, but only time will tell if these expectations were well grounded or dumbfounded. If you have questions about where the capital markets are going, please contact Austin Buckett.
Data used in this article comes from information and reports provided by GF Data Resources, LLC, Mergermarket and Pepperdine Private Capital Markets.