I have an upcoming final round with a well-known MM bank, and need to rank my top 3 groups for the summer. Two of my choices will be M&A and Consumer, but I'm debating on the third choice.
I have a strong interest in Sponsors because I would like to transition to PE at some point, so working daily with PE firms should be a huge benefit in making the switch. That said, I'm not sure how much dealflow there will be this summer because of the credit crunch. Also, I don't know how much Sponsors at a MM will differ from at a BB. Is there a lot more pitching involved within Sponsor groups at MMs?
Would love to hear some thoughts on Financial Sponsors at MMs and the outlook of Sponsors in general going forward.
You'll see plenty of deals in a MM financial sponsor group.
I don't think MM deal flow has slowed much at all - in any case, it certainly hasn't been impacted to the extent that leveraged large-cap deals have.
From what I understand, MM deal volume has stayed pretty consistent, although debt financing has become more conservative in terms of total leverage amounts, covenant requirements and pricing (particularly for more subordinated securities).
I think it depends on the MM shop, but smuguy is mostly right. MM deal flow has taken a hit. All the big lenders have frozen new underwriting, so smaller middle market lenders with less snydication capabilities are taking over - lenders like CIT, Capital Source, GE Capital, etc.). So while I wouldn't say MM deal volume hasn't slowed, I would argue that in lower middle market, up to the threshold where these smaller lenders can underwrite and syndicate debt, that it hasn't. Anything that requires more than several hundred million dollars of debt, and a large bank group, that's where MM deal flow starts to suffer. Probably buyouts of 400mm or greater.
To answer the original question, I would say it really depends on the shop. Some middle market shops specialize in lower middle market transactions and have great relationships with smaller financial sponsors. If that's the case, I would say yes, despite market conditions you will continue to see deals. It really depends on the shop though. Middle market is such a vague term that while some MM banks are strong in M&A or fairness, they may not have alot of strong sponsor relationships, especially if they can't offer any debt underwriting capabilities.
Would just like to say that smuguy and GameTheory both gave great responses that mirrors what we're seeing at my bank. Under $400mm really has not been impacted in terms of ability to get the deal done. Terms and multiples aren't as attractive, but the activity is certainly there. CIT, CapSource, and GE have all been active in providing leverage for the buyers of my deals.
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