Economic Slowdown Hurting Middle-Market Businesses

It has become commonplace to hear reports of new casualties among the economic titans, but the struggling economy has taken its toll on mid-sized businesses as well, according to The Deal Newsweekly.

Middle-market deals, those valued between $100 million and $1 billion, have fallen off recently as the credit market ceased functioning. Companies are finding it more and more difficult to raise private equity as the “contagion” of Wall Street spreads throughout the system.

Many had hoped that the dysfunctional financial system would take its toll at the top – picking off Merrill Lynch, Lehman Brothers, Bear Stearns and others – but leaving mid-sized businesses relatively unscathed. As has been the case with most of the market optimism at the beginning of this downturn, the idea that middle-markets would persevere is quickly going out the window.

Douglas Dossey of private equity investment firm FdG Associates LLC in New York describes the situation as a “kind of purgatory.” With so much uncertainty, and the looming possibility of every situation rapidly getting worse, many clients and investors are simply sitting on their hands. Dealmakers are “waiting for the other shoe to drop,” said Howard Lanser of Robert W. Baird & Co. This “wait and see” method has caused the flow of credit and equity into medium sized businesses to dry up.

Buyouts, mergers and acquisitions are lower across the board for fiscal year 2008 relative to last year. This has taken hundreds of millions of dollars, which would otherwise be flowing to corporations and employees, out of the system.

As private equity dries up in the U.S., companies face the increasing possibility of foreign buyouts, which are hazardous to the overall U.S. economy. Foreign-owned companies send their profits overseas, crippling the sovereignty of the U.S.

Source The Deal Newsweekly:

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