What Does the Fed’s Prediction of Increasing Growth Mean for Business Owners?

Posted on July 2, 2013

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Last month Chairman Bernanke spoke and the markets reacted by dropping more than 5% in a few days.  Clearly he must have shared some very bad news for business owners.

Actually not!  Coming into the year many observers thought that the federal budget sequester would put the economy at risk of stalling at best and dropping back into recession at worst.  Instead the Fed now foresees annual economic growth at 2-2.5% this year, moving to as much as 3.5% by 2015.  And it’s the private sector that’s carrying the load, not government programs.

Let me say that again.  The Fed now believes that growth is going to accelerate over the next several years.  As a result the economy may not need so much artificial stimulus (QE) going forward.  The economy is no longer digging a hole; we’re back to building a foundation of real economic growth.

What does this mean for the deal business and for private companies considering M&A or corporate finance transactions?  Bottom line: there is going to be much more demand for capital to fund growth.  Unless the banks step up to the plate, which we believe is unlikely, this capital must come from private lenders and equity providers.

The good news is that there is a great deal of financial market capital available to meet this need.  We just closed a mezzanine financing that gave us a good window into the market’s current appetite.  Over the past few years, major investors have made significant financial commitments to entities designed to fill the void left by banks which have abandoned their commercial lending franchise.  As a result today there are numerous private debt providers seeking opportunities to provide senior, hybrid and mezzanine capital to private companies.  Where equity capital is needed, private equity groups are … read the rest