You have expanded substantially in the European mid-market – do you remain confident about prospects?
It's a tough market but we continue to buck the trend given our belief in the mid-market business opportunity. Our investment banking business has nearly doubled headcount in Europe over the last year as we've built out our European industry sector teams. The mid-market is ripe for opportunity for us as there are few firms offering full service investment banking to growth and mid-market companies and their investors on a global basis. The big banks dip down into the mid-market episodically, but the competition is typically boutiques and regional investment banks.
What's your take on current market conditions?
We are busy right now. Of course, being busy doesn't always correlate with closing deals. Undoubtedly others are busy too and there is a completion risk that we are all facing in a volatile market. Debt and equity capital markets are tough in terms of the ability to finance deals. But we have a healthy string of advisory mandates. The IPO market is really tough right now for all but mineral, mining and energy companies. We benefit from deep global insight into where capital is flowing and where it is not.
Is the mid-market buyout space still buoyant?
It's tougher for private equity to compete due to the lack of debt. But there are still growth equity opportunities and people are structuring deals with a view to refinancing downstream. We are seeing deal interest from institutions that don't require significant leverage to make their economics work. Debt to EBITDA is typically in the range four, perhaps up to six times – it's rare to see leverage higher than that.
Are private equity firms being outbid by strategic investors?
In one process on the continent that we're currently involved in there are three sponsors involved and one strategic bidder. There is a lot of conservatism around corporate boardrooms and they don't have the same “ticking clock” to deploy capital as private equity. Private equity firms are deal machines. It's a case of “use it or lose it”: if they can't deploy the capital, they're under pressure to give it back. That pressure means they are a continuing force in the market. They may have to lower their returns and take more risk, but there are things they can bring to the table to secure deals, such as management, or relevant industry experience to support a business.
What would you see as the key dynamics in the European mid-market today?
It's a broad mosaic. Leverage is harder to obtain, it's an uncertain economic outlook, and asset values are being re-set so it's more difficult for buyers and sellers to reach agreement. Volatility creates uncertainty and, therefore, there is a downside focus. Due diligence is much more rigorous. We're representing public company situations where the level of due diligence is more akin to what you'd normally see in the private domain. Boxes are being treble-ticked. Getting deals done in this market requires tenacity and creativity, together with access and insights into strategic pools of capital, globally.