Everything from feast to famine in the mid-market

The networking frenzy at this year’s ACG InterGrowth event saw some people boasting about successful deal volume, others talking about the difficulty of getting deals done, and still others experiencing something in between.  

This week PDI attended the sprawling ACG InterGrowth conference in New Orleans, where private equity honchos, debt managers, banks, service providers and mid-market company executives all gathered to talk deal making. Dozens of firms had booths set up to advertise their services, while many managers arranged meetings on the sidelines to pitch prospective clients, compare notes on interest rates, gossip about competitors and talk about which would be the best party that night.

In one of his first public appearances since his move to CPPIB, Antares Capital’s David Brackett took the stage on Tuesday to share what his firm has been up to since being sold to the Canadian pension plan by General Electric in August. Brackett told the audience he had a particularly good week recently, having closed 19 deals. That volume seems particularly impressive at a time when many managers appear worried about market volatility, defaults and some negative economic indicators.

Antares’ experience isn’t common, however. Brackett, and Antares’ other co-chief executive, John Martin, are famous in the mid-market lending business. The duo have built relationships with the sponsor community for decades, having worked together on large deals at GE Capital and other firms for many years. The firm is one of the largest and oldest lenders in the business and a go-to among US sponsors.

Antares also has something to prove. With many of its competitors watching and gossiping for months about what the GE Capital sell-off would mean for the business, the firm is eager to show them that it’s still alive and well. Brackett said Antares normally does 225 to 250 deals per year, and the pace didn’t fall off by much last year: it was at 175 and he expects to get back to the normal volume this year.

Brackett admitted though that we’re in a slow-growth economy, where many deals this year might fall into the dividend recap bucket.

Talking to managers at and outside of the conference, some are enthused by the fact that oil prices, equities and high-yield bonds have been on an upswing in the last month or two, after declining for some time. Though others aren’t sure if that spike will last.

Either way, many managers tell PDI it’s often hard to get deals done. The flow either isn’t there or they suspect they are being shown lower quality or more risky deals. Brackett pointed out that M&A was high last year, second only to 2007, but people question how much further that can or should go. Leveraged buyouts were down in 2015, and Brackett pointed out that corporate earnings showed negative numbers.

All of these indicators are leaving lenders scratching their heads, yet they still need to make deals to fuel their businesses. One debt fund manager said he collected 50 business cards in one night, but emphasized that it’s important to follow up with people, otherwise all the networking becomes a waste. One mezzanine manager boasted to PDI that his firm closed as many as 12 deals last year, but another junior debt provider who found mezz deals harder to come by lately said it’s important to go to the conference every year and get in front of prospective clients. The conference was particularly well trodden by mezzanine firms, which some surmise is because it’s particularly hard to get deals done in the junior debt sector these days.

A few debt firms that have been going to the ACG event for years now say that, with 2,000 attendees, the event has become too large and it’s often hard to catch the right people, so they avoid it or participate less than they used to.

But whether it’s large conferences, small conferences, one-on-one meetings or something else, no one can deny the need for relationship-building and getting face time with clients. Ultimately, with more competition in alternative lending and other headwinds facing the market, it’s harder for firms to get deals done. Far from everyone can get to Antares’ level, or stay there.