BusinessCorporate FinanceOptimism overcomes jittery markets

Optimism overcomes jittery markets

Despite the portents, the fundamentals underpinning the market remain strong and show no signs of a slowdown

Corporate financiers remain stoic in the face of falling stock exchanges and
warnings of a debt market collapse, and are confident that, despite these fears,
conditions for deals will remain buoyant.

Senior dealmakers, including Alchemy Partners head Jon Moulton and Sir Ronald
Cohen, co-founder of Apax Partners, have warned of a collapse in the
leveraged-loans market.

Stock markets have also been shaky, exacerbating concerns that corporate
finance could be in for a slump.

A number of experts in the field, however, believe that despite the portents
the fundamentals underpinning the market remain strong and show no signs of a
slowdown.

Steve Halbert, head of middle market corporate finance at KPMG, says that
despite ‘stock market jitters’ business remained eager to expand.

‘Confidence is high, cash flow is strong and financing conditions are
favourable,’ Halbert says.

Harvey Hoogakker, assistant director of debt advisory services at Ernst
& Young, says the concerns over a collapse in the debt markets are based on
the high debt to earnings multiples on deals rather an actual drying up of debt
liquidity.

‘At this point in time, the concerns raised about a collapse are based on
fear rather than actual observation,’ Hoogakker says. ‘The concern is that with
the steady increase in leverage levels, lenders are taking on positions that
cannot be sustained, which will swing the pendulum the other way to a credit
crunch.’

Hoogakker adds that as long as defaults remain low this scenario is unlikely
to materialise.

‘Commentators were predicting that leverage levels were unsustainable two
years ago, but as long as defaults are low, there will still be liquidity and
confidence.’

This is a view shared by Halbert, who says that deals are structured more
carefully than during the last M&A boom. He says more equity is going into
deals, which is reducing the risk of failure.

‘Many commentators have been calling the top of the market for some time, yet
we appear to be hitting new levels with no sign of arrest. Many predicted we
would run out of road but the landscape has changed to keep pace,’ Halbert says.

Robin Lincoln, a director at private equity house HgCapital, believes the
major challenge for the industry is not a collapse in the debt markets, but
rather choosing the appropriate levels of leverage for different companies.

‘Some companies can handle leverage of seven to eight times EBITDA. Others
can only sustain lower levels, but are loaded with too much debt and that is the
major concern,’ Lincoln says.

Related Articles

Grant Thornton recruits new corporate finance partner

Accounting Firms Grant Thornton recruits new corporate finance partner

10m Emma Smith, Managing Editor
Total fraud value at £2bn five-year high, finds BDO

Accounting Firms Total fraud value at £2bn five-year high, finds BDO

11m Stephanie Wix, Writer
MHA MacIntyre Hudson appoints corporate finance director

Accounting Firms MHA MacIntyre Hudson appoints corporate finance director

11m Stephanie Wix, Writer
Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

Consulting Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

11m Stephanie Wix, Writer
KPMG announces senior partner promotion in Newcastle

Accounting Firms KPMG announces senior partner promotion in Newcastle

11m Stephanie Wix, Writer
Independent city firm reports 70% growth

Accounting Firms Independent city firm reports 70% growth

11m Stephanie Wix, Writer
Tax avoidance crackdown sees 80% jump in additional HMRC revenue

Accounting Firms Tax avoidance crackdown sees 80% jump in additional HMRC revenue

11m Stephanie Wix, Writer
Making Tax Digital: the "unexpected item in the bagging area"

Accounting Standards Making Tax Digital: the "unexpected item in the bagging area"

11m Stephanie Wix, Writer