Private Equity Panel Point to Increases in Scrutiny, Pricing for Middle Market Deals	Private equity veterans are collectively holding their breath to see what the future holds for the health of the middle market deals in light of the current credit crunch. At this year's "Private Equity Outlook," hosted by the Graziadio School of Business and Management and the Los Angeles Venture Association and organized by the Graziadio Alumni Network Council of Los Angeles and its chair, Lori Williams, a group of industry experts lent their own voices to the ensuing of discussion of the impact of America's credit crisis.

Most pointed to signs of weakness in middle market investments and consumer spending.
"It's a very fluid market, certainly in the debt market. We expect it to remain slow for acquiring businesses in the second quarter," said Michael Carr, VP of Buyouts for American Capital Strategies. "We hope that by the end of the second quarter we will see a turnaround in middle market M&As."
Deal pricing has increased while leverage multiples have dropped said Beth Page, Managing Director of Riverside Company. "Debt capacity for middle market deals is still there but it's become more expensive. I think deals will still get done, but I do wonder if sellers will look at the market uncertainty and pull back."
"People started talking about the next distress cycle three years ago," noted Peter Spasov, Director, Marlin Equity Partners. "Consumers are tightening their wallets and we're starting to see bankruptcies on the retail side and an uptick in distressed properties."
Tom Turpin, Managing Director of Allied Capital, said that it has become more challenging for companies with $15M or more in EBITDA to find loans. "No lender wants to hold all of the debt." He sees a return to early 2000 models when creditors were more interested in holding loans than in selling them. Still, he believes the industry is in better shape that most are admitting.

"Corporate defaults were at a 30-year low – one-third of one percent -- last year," he said. "Usually leveraged loan defaults run between eight to ten percent during a recession. The question is really what's going to happen over the next year, and that's largely going to be a result of the impact of the stimulus."
Panelists also reported an increase in lender scrutiny, particularly for deals tied to homes, energy and other trouble spots in the US economy.
"Lenders are really focusing on the quality of the business now," says Larry Simon, principal for Clearview Capital LLC. "We went out to market on a deal that was loosely tied to homes and we had a handful of lenders turn us down. We want to see numbers monthly and weekly to really understand how a business like that is performing."  Most panelists expect similar rates of return -- 3-3.5 x cash on cash return and upwards of 20 percent IRR – but noted that returns have dipped as the private equity industry has matured.

"There's no question that rates of return are coming down," said Michel Glouchevitch, General Partner, Riordan, Lewis & Haden. "Ultimately the institutional funds will be looking at alternatives. When you compare our returns, what we call the alternative asset class, against the public funds return, there's still a wide gap that more than compensates for the lack of liquidity but that gap has been narrowing. It may make it tougher to raise funds in the future for private equity which may ultimately, in the long run, stabilize the returns at some acceptable premium to what you would get at some public funds which are more liquid. Somehow it all works out."      To read more go to http://lwandassoc.com/articles.htm
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Recession who knows? It may be time to read the numbers.

Daily on CNBC another well-known economic pundit hints at the possibility of a recession. This week’s “recession-sentiment warriors” included the great Warren Buffet and the consummate innovator Sir Richard Brandon, Chairman of the Virgin Group. Moreover, most economic pundits now believe that we will experience an economic slow down with some sectors being hit harder than others. While there are still a few lingering questions, enough compelling data exists to suggest that companies should engage in some strategic counter-recession planning.

Officially, a recession is defined as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales” (National Bureau of Economic Research). A recession is only officially recognized when the (NBER) declares it to be so. Whether or not we are actually in a recession is really a mute point when making real-time business decisions. Business owners shouldn't wait for historical data to take the critical steps that will be needed to weather the economic storm. So, the real question becomes what to do in an economic slowdown—if you are an institutional or individual investor or a CEO of a large or a privately held company. The applicable answer: Define the fundamental economic position by analyzing your industry, company, customer base, cost structure, debt leverage and retained earnings.

All industries are not created or destroyed equally, and some companies are better positioned for economic uncertainty. To analyze each industry, evaluate the economic impact on its customers and suppliers if a slowdown were to occur. If the conclusion is troubling—accept the inevitable and perform an analysis to determine the ability of your company to adjust to the evident economic impact. This involves a review of the cost structure, debt leverage and retained earnings.

The cost structure identifies the profit margin and your company’s ability to absorb overhead cost. Higher margins allow greater cost flexibility. Additionally, a reduction in overhead may be easier than cutting production cost, especially if inflation is competing factor.

The balance sheet will reveal your debt leverage and the strength of your borrowing power. Retained earnings examine the past performance of your business model and your management team. If the retained earnings tell a story of past negative growth, the business model's ability to take an additional hit will be questionable at best.

In the case of a company with less favorable financial position, innovation may be the only solution. Since negative growth and declining retained earnings impact the balance sheet and reduces a company’s ability to obtain debt or equity investment, your company may need to form a strategic alliance or joint venture to allow reorganization without a substantial reinvestment of funds.

We may be heading for tough economic times and, no doubt, some companies will not survive the squall. However, there are many examples of companies that have escaped disaster through leadership and vision. It's no secret that markets trade on sentiment and the “mood” can lift or pummel the economy. In times of economic uncertainty, your preparation and strength of will are genuine assets.

To read more go articles written by Lori Williams go to http://lwandassoc.com/articles.htm  or http://blog.lwandassociates.com/
 

AROUND TOWN
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Understanding How to Read Financial Statements
http://www.lwandassoc.com/classes.htm

Date: April 24      9:30am-3:30pm
Cost: 249 (group discounts available)
Location: Pepperdine University, West Los Angeles Business Center

The data contained within the income statement, balance sheet and cash flow statement can provide business owners, managers and executives with key information for sound economic decision making. Therefore it is vital that business managers understand how to read and interpret these reports.

------------------------------------------------------“Profits with Principles”,Exploring Strategies for Closing the “Responsibility Gap”

Date: April 22      7pm-9:30pm
Cost: $15
Location: Newport Beach Radisson Hotel    To register: Click Here

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“Profits with Principles”, Exploring Strategies for Closing the “Responsibility Gap”

The Social Enterprise Institute fosters convergence across nonprofit and for profit organizations by finding ways to bring “business thinking” to executives in the social sector. On the one hand, private sector businesses today are being challenged by their customers, employees and investors to become more socially responsible in their day-to-day business practices. Conversely, nonprofits today are being required to be more businesslike and results-oriented by their constituents and funding sources. Social enterprise occupies the space where these historically bi-polar forces are now converging.

On Tuesday, April 22nd, from 7 pm to 9:30 pm at the Newport Beach Radisson Hotel, we hope you will join us for a provocative discussion on how businesses can address the social, environmental and economic issues that threaten the sustainability of our fragile planet. Co-sponsored by OC Pepperdine Alumni Association and Net Impact Orange County and the Social Enterprise Institute, the event will include a speaker and panelists with extensive knowledge in “walking the talk” of corporate social responsibility.

Our keynote speaker will be Ira Jackson, Dean, Drucker Graduate School of Management and co- author, Profits with Principles. Our panel will include L. Robin Keller, Associate Dean, Full-Time MBA Program, The Paul Merage School of Business, University of California, Irvine; Mark Van Ness, CEO Sperry Van Ness; Founder, Social Enterprise Institute and Lori Williams, Chief Strategist, LW & Associates; Chair, Pepperdine LA Graziadio Alumni Council. The panel will be moderated by Tom Hardesty, who chairs both Vistage International and SEI Leadership groups.