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Another Strong Year Expected for U.S. Leveraged Loans

Wednesday, February 9th, 2011

08 February 2011

Outlook positive after big comeback in 2010

NORWALK, CT — This year is expected to be another strong one for leveraged loans, said Sage Nakamura, managing director of loan syndications with GE Capital Markets, Inc. GE Capital, Americas is a leading provider of commercial loans and leases to mid-market businesses across diverse industries throughout the U.S., Canada and Mexico.

Nakamura characterized 2010 as “a comeback year for leveraged loans,” with volume of $233 billion – a 205% increase over 2009. “As the economy rebounded and loan defaults eased, liquidity flowed back into the loan market and investors, including GE Capital, were eager to lend,” he said.

“The surge in investor demand for these types of loans that began at mid-year last year is still picking up speed in early 2011,” he later noted. “Already, we are seeing tighter pricing on transactions, and yield compression should continue throughout the year.”

Asset-Based Lenders Helping to Fuel Economic Turnaround for U.S. Businesses

Friday, December 3rd, 2010

Thirty-five percent of reporting asset-based lenders report increase in new credit commitments

The Commercial Finance Association released its Quarterly Asset-Based Lending Index, Q3 2010 revealing continued growth in new credit commitments and credit line utilization, further evidence that U.S. businesses continue to utilize options other than traditional bank financing to sustain and grow their operations as the economy starts to show signs of life.

The index revealed:

  • New credit commitments among asset-based lenders increased by 2.7 percent in the 3rd Quarter
  • 35 percent of reporting asset-based lenders report an increase in new credit
  • Credit line utilization increased for the fourth quarter in a row, to 36.8 percent
  • Portfolio performance continued to improved, with 80 percent of responding
    lenders reporting gross write-offs declined or stayed the same compared to the previous quarter

“There are signs everywhere that the economy is slowly starting to turn around and the results of the 3rd Quarter ABL Index show that asset-based lenders are playing a vital role in fueling this revival,” said Andrej Suskavcevic, CEO, Commercial Finance Association. “Just as they did during the deepest part of the recession, asset-based lenders will continue to provide essential working capital for American businesses of all kinds.”

Venture Capital Survey Reveals Improved Valuations in Third Quarter of 2010

Wednesday, November 24th, 2010

November 22, 2010 (Mountain View, CA) – Fenwick & West LLP, one of the nation’s premier law firms providing comprehensive legal services to high technology and life science clients, today announced the results of its Third Quarter 2010 Silicon Valley Venture Capital Survey.

The Third Quarter 2010 survey analyzed the valuations and terms of venture financings for 107 technology and life science companies headquartered in the Silicon Valley that reported raising capital in the third quarter of 2010.

“During the third quarter of 2010, up rounds exceeded down rounds 52% to 30% with 18% flat. This was similar to the second quarter of 2010, when up rounds exceeded down rounds 55% to 27%, with 18% flat, and the fifth consecutive quarter in which up rounds exceeded down rounds,” said Barry Kramer, partner in the Corporate Group of Fenwick & West and co-author of the survey.

An up round is one in which the price per share at which a company sells its stock has increased since its prior financing round. Conversely, a down round is one in which the price per share has declined since a company’s prior financing round.

The Fenwick & West Venture Capital Barometer™ – which measures the change in share price of Silicon Valley companies funded during the quarter compared with the share price of their previous financing round – showed a 28% average price increase for the quarter, compared to 30% in the first quarter of 2010.

“This was also the fifth consecutive quarter in which the Venture Capital Barometer was positive,” said Kramer.

“The best performing industries in the quarter from a valuation perspective were internet/digital media, and to a lesser extent life sciences, with internet/digital media clearly out performing other industries from a valuation perspective through the first three quarters of 2010,” added Michael Patrick, partner in the Corporate Group of Fenwick & West and co-author of the survey.

“However, as reported by third party sources, since the beginning of 2009 venture capitalists have invested significantly more in companies than the amount of new funds that has been committed to venture funds. This trend would likely result in valuations decreasing if commitments to venture funds do not increase,” noted Patrick. “Yet with the recent improvement in liquidity for venture-backed companies, and improvements in the stock market in general, there is reason to be hopeful that an increase in commitments to venture funds may be on the horizon.”

Complete results of the survey with related discussion are posted on Fenwick & West’s website at

About the Survey
The Fenwick & West Quarterly Venture Capital Survey, co-authored by law firm partners Barry J. Kramer and Michael J. Patrick, offers a unique view of the venture capital market in the Silicon Valley/San Francisco Bay Area by providing insight into the changes in venture capital valuations and terms. Focusing exclusively on trends in venture financing and valuations, the Fenwick & West Surveys complement the economic data presented in the Dow Jones VentureSource Survey and the MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

GF Data’s latest valuations report shows a marked increase in purchase price multiples for small- and mid-market transactions.

Thursday, November 18th, 2010


November 18, 2010

The good news is that deal volume is moving incrementally higher, reflecting growing confidence among private equity buyers; the bad news is that prices are also rising, showing a “pronounced increase” according to GF Data Resources’ third-quarter report.

Philadelphia-based GF Data, which tracks transactions of 163 participating mid-market PE firms, reported that the number of deals in the third quarter represented the highest figure over the past seven quarters. Meanwhile the average purchase price multiple reached 6x trailing 12-month Ebitda, up significantly from the previous four quarters that saw valuations reside in the 5x times Ebitda range.

GF Data specializes on the small and mid market, tracking deals between $10 million and $250 million in size.

Andrew Greenberg, CEO and co-founder of the data provider, said in a statement that he believes deal volume “will continue to expand” heading into the New Year. He added the caveat that the market has not reached the point at which it would be “impervious to backsliding.”

Breaking it down by segment, GF Data cited deals in the manufacturing, business services and healthcare sectors as contributing to the uptick in valuations. Deal multiples in the media and retail industries, however, continued to be soft.

The last time average enterprise multiples exceeded 6x was in the second quarter of last year, a period marked by a “flight to quality,” according to the authors of the report, when just 16 deals were documented.

Leverage multiples, with total debt averaging 2.7x Ebitda year to date, represents an improvement over the year-ago corresponding period. Equity contributions from sponsors, meanwhile, still typically make up more than half of the capital structure, showing a year-to-date average of 54.2 percent and underscoring a cautiousness that still pervades sponsor activity.

CEOs Most Optimistic on U.S. Profits in Bull Signal

Monday, November 8th, 2010

November 08, 2010, 10:15 AM EST

By Lynn Thomasson and Whitney Kisling

Nov. 8 (Bloomberg) — More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy.

EBay Inc., United Parcel Service Inc. and 196 other companies raised profit estimates above analysts’ projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent from July 2 through Nov. 5. That beat the 20 percent rally in the Standard & Poor’s 500 Index.

Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasuries. The last time executives were this optimistic, stocks climbed 39 percent over the next 3 1/2 years, data compiled by Bloomberg show.

“It’s important for the rally and for the general health of the market that investors continue to anticipate higher earnings,” said Dean Gulis, who manages $3 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “That companies themselves are expecting better profits is very positive. As we see rising earnings, we’ll see improving stock prices.”

GDP Growth

About 1.5 U.S. companies boosted earnings estimates above analysts’ forecasts for each that cut projections in October. That’s about three times the average of 0.59 in the past 10 years, data tracked by Bloomberg show. The ratio fell to a record low of 0.1 in December 2008, three months after New York- based Lehman Brothers Holdings Inc. filed for bankruptcy. When it reached 1.1 in March 2004, the S&P 500 rose from 1,126.21 to a record 1,565.15 in October 2007, Bloomberg data show.

The S&P 500 has gained about 200 points since falling to a 10-month low on July 2 after companies from Baltimore-based T. Rowe Price Group Inc. to Google Inc. in Mountain View, California, topped analysts’ estimates and investors speculated the Fed would act to boost growth. The benchmark measure of U.S. stocks rose 3.6 percent to 1,225.85 last week, the fifth- straight gain. The S&P 500 slipped 0.5 percent to 1,219.95 at 10:08 a.m. in New York.

Earnings at EBay, the owner of the second most-visited e- commerce site, are getting a boost as consumers make more purchases online and use its PayPal service to handle money transfers. The San Jose, California-based company forecast more fourth-quarter sales and earnings than analysts estimated on Oct. 20, spurring the biggest gain in the shares in nine months.

Credit Expansion

Consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by a surge in non- revolving credit such as college loans and auto financing, the Federal Reserve said on Nov. 5. The report was released the same day the Labor Department said employers added 151,000 jobs in October, more than twice the median economist prediction.

“We have outperformed our expectations through the first three quarters of the year, and enter the holiday season with confidence in our payments business,” said Bob Swan, EBay’s chief financial officer, on a conference call following the earnings release. “From a business standpoint, our global footprint is expanding.”

Rising international demand for everything from transportation services to tobacco and power tools is helping drive profits at companies such as UPS, Philip Morris International Inc. and Danaher Corp. While forecasts for U.S. gross domestic product in 2011 have fallen to 2.4 percent from 2.9 percent in July, the biggest emerging markets are expected to expand at least twice as fast, based on economist estimates and International Monetary Fund forecasts compiled by Bloomberg.

Corporate America Sitting on $1 Trillion

Wednesday, October 27th, 2010


October 27, 2010

Nine hundred forty-three billion dollars, in the form of cash and short-term investments, is burning a hole in the collective pocket of non-financial US companies, according to research from Moody’s Investors Service. A significant portion of the nearly $1 trillion, dealmakers hope, will find its way into the M&A market.

Moody’s suggested that companies may be “reluctant to spend on expansion and hiring,” citing that demand and capacity utilization remain low in many industries. But as the economy further stabilizes, Moody’s anticipates that corporations will begin to put the capital to work through share buybacks and acquisitions.

The amount of capital residing on corporate balance sheets grew by more than 21% since the end of 2008. The divide between the rich and the poor, however, is pretty substantial, as 20 companies make up 37% of the total. Cisco, Microsoft and Google, alone, account for more than $105 billion.

The bulging cash positions are leading to M&A speculation even for those who haven’t historically displayed a taste for the deal. When Apple disclosed that it had $51 billion of cash in its most recent earnings statement, Steve Jobs hinted at plans to take advantage of “strategic opportunities that may come along.” Observers and commentators went into overdrive speculating about potential targets. Apple, it’s worth noting, isn’t even in the top eight tech companies listed by Moody’s, which collected data from the June and July timeframe.

According to the Moody’s report, the technology, pharma, energy and consumer sectors represent the “top cash-heavy” industries, while environmental, aircraft and aerospace, and natural products are at the bottom.

Beyond M&A, the strengthening cash position of corporate America also bodes well for the so-called refinancing cliff, as the aggregate cash-to-debt ratio sat at 0.28, according to Moody’s, showing a material improvement since the end of 2008.

“While we hear a lot about the looming debt refinancing cliff, receptive bond markets and generation of operating cash flow are combining to make the cliff look less intimidating for the stronger, higher-rated companies,” Moody’s wrote in the report.

Senior vice president Steven Oman and managing directors Tom Marshella and Mark Gray authored the report.

Venture Industry Rebounds in First Quarter

Tuesday, April 13th, 2010


In the first quarter, 111 companies backed by venture capital were sold, a 73% increase from the same period a year ago and the most on record, according to Thomson Reuters and the National Venture Capital Association.

Dealmaking: Get Ready for an Upswing in 2010

Friday, March 5th, 2010

Companies looking to fix strategic flaws or simply to grow are turning again to M&A, says Bloomberg BusinessWeek columnist Frank Aquila

Corporate dealmakers lived in “interesting times” in 2008 and 2009. In the wake of the financial crisis and the resulting Great Recession, financial institutions disappeared or changed form at an unprecedented rate, the capital markets struggled to remain functional, and central banks around the world pumped trillions of dollars into capital markets in an effort to limit the long-term damage. Not exactly an ideal environment for merger and acquisition activity. A few blockbuster deals this year periodically made it appear as if M&A were back, but never for long.

Conditions for M&A are changing—positively, dramatically, and rapidly. Corporate boardrooms are once again abuzz with discussions about the next deal. After two years in which worldwide M&A dropped steeply, 2010 now appears to be when dealmakers will once again be talking about premiums and hostile bids, rather than bailouts and busted deals. Early 2010 should be a time of great opportunity for those with an appetite for acquisitions after the deal famine. We are already seeing a significant pickup in activity, with the past two months demonstrating the most sustained level of M&A activity since Lehman Brothers collapsed.

Not a moment too soon. Studies have shown that M&A deals struck during downturns yield higher returns than those completed during economic upswings. While some companies will be reluctant to proceed with acquisitions until conditions are perfect, their reluctance creates greater opportunities for those that do proceed because it means limited competition and reasonable prices for target companies.

Acquiring Revenue, boosting profits

Ernst & Young recently found that 33% of CEOs of U.S. companies are likely or highly likely to make an acquisition in 2010. Similarly, a recent survey of the largest European companies by the Boston Consulting Group found that one in five of those companies plans a major acquisition in 2010. And M&A activity will not be limited to the U.S. and Europe: Asia and Latin America will likely be hotbeds of deal activity as well.

So why, after two years, are companies suddenly focused on making acquisitions? While every deal is unique, a few key themes emerged as M&A picked up since the summer. Deals at the moment are highly strategic and focused on both revenue and profit growth. While credit is available to the strongest corporate borrowers, most acquirers are using shares or cash on hand rather than borrowing excessively. These deals also reflect solid optimism about the future of the global economy.

Given the swift and dramatic nature of the downturn, weaknesses in many companies’ business models became painfully evident. A seemingly perfect array of products and services in a robust economy turned out to be not so perfect in a recession. Having lived though these shortcomings—and survived—companies now have the opportunity to fill their strategic holes. Even if no weaknesses were found during the 2008-09 economic “stress test,” many companies that put acquisitions on hold for the past two years are now back in the market.

Cash Hoards

Not only do companies have the need to make acquisitions; more importantly, they have the cash. Many concerns were quick to make workforce reductions and other overhead cuts in 2008, once it became clear that the credit crisis would be severe and unclear how long it would last. These sharp reductions have led to the 2009 phenomenon of company after company reporting reduced revenue with profit that beat market expectations. In fact, the cash pile of Standard & Poor’s 500 companies has grown by well over $100 billion since the Lehman bankruptcy.

With little excess costs left to cut, slow growth in the overall economy, and plenty of cash to spend, many companies will find acquisitions. Combinations that allow these companies to make further overhead reductions will be at the top of the list. These deals will also allow them to obtain the revenue increases that are otherwise unavailable in the marketplace. While strategic buyers prefer friendly combinations, don’t expect every deal to be totally friendly.

Unsolicited deal activity already appears to be on the rise, and the markets are increasingly receptive to the possibility of hostile takeover bids. Unsolicited bids are no longer viewed with the same scorn they once were now that blue chip buyers such as Kraft (KFT), PepsiCo (PEP), InBev (BUD), Roche (RHBBY), Microsoft (MSFT), and Samsung have all gone public with unsolicited deals. Companies with their pedigrees do not have reputations for being “barbarians at the gate” and are viewed as making strategic approaches to pursue the relentless logic of cost and revenue synergies at favorable prices. They are not always successful, but even an unsuccessful bid lifts a target’s stock price.

Return of Private Equity

Other forces will fuel M&A activity in 2010 as well. The cheap dollar and low interest rates will no doubt entice more than a few prospective buyers to do deals. As the Chinese government’s recent decision to inject an additional $200 billion in its CIC sovereign investment fund indicates, sovereign wealth funds may well become major players again in 2010. In addition, the deals for IMS Health, Busch Entertainment, and Skype show that private equity funds are not dead and in fact are looking for innovative structures to do deals.

The winners and losers of the new decade could be determined during the next year. The great M&A machine will soon start rolling again. Fortunately the markets seem to be ready to help propel us in that direction more quickly than not. While credit troubles in Dubai and Greece remind us that the road to recovery will have a few more bumps ahead, they will be merely bumps. Companies that seize the M&A moment in the year ahead will likely be the real winners in the decade to come. From many perspectives, 2010 should be an interesting and challenging year in the M&A world.

Aquila is a partner in the Mergers & Acquisitions Group of Sullivan & Cromwell LLP.

Asset-Based Lending Grows in Popularity

Friday, February 5th, 2010



When the University of Alabama booked its trip to the college football national championship in December, Weezabi LLC went into a hurry-up offense.

The three-employee company—one of the few licensed to make “Crimson Tide” merchandise—needed 60,000 T-shirts. Without the time to huddle investors, Weezabi pledged as collateral part of its future revenue to FTRANS, an Atlanta-based lender and credit analyst.

Weezabi pledged part of its future revenue as collateral to get funds to make 60,000 t-shirts. CEO Seth Chapman is shown in a Montgomery, Ala. warehouse.

“If it wasn’t for that loan, we would have missed the boat on all of this hot-market stuff,” said Weezabi’s chief executive, Seth Chapman.

Asset-based lending, once considered a last-resort finance option, has become a popular choice for companies that don’t have the credit ratings, track record or patience to pursue more traditional capital sources.

Because asset-based lenders focus on collateral, rather than credit-worthiness, they do deals that more traditional lenders shy away from. Borrowers put up equipment, inventory, accounts-receivable and other liquid assets in exchange for the money. Drawbacks include relatively high rates, and the ability of lenders to legally seize assets if the borrower misses payments.

Asset-based lending, excluding mortgages, swelled by 8.3% to almost $600 billion in 2008, according to the Commercial Finance Association, an industry trade group. The association is still gathering data on 2009, but preliminary surveys show double-digit percent increases in lending. In comparison, syndicated lending in 2009 sagged by 39%, according to Dealogic Inc.

“We’re no longer viewed as the lender-of-last-resort—let’s put it that way,” said Michael Sharkey, president of Cole Taylor Business Capital, a Chicago-area asset-based lender. “And we should really be viewed as the fireman of this crisis, because we took risks that a lot of companies won’t take.”

The asset-based finance industry is still dominated by Wall Street’s biggest firms and almost all of those companies pulled back during the crisis. From 2007 to 2008, almost half of asset-based loan volume from the industry’s top 25 firms disappeared.

However, those companies are quickly getting back in the game. They funded 23% more deals in 2009. Wells Fargo, which in 2008 acquired Wachovia—another big asset-based lender —shot to the No. 2 spot on the asset-based lending league table, lending 23% more than both companies combined had doled out in 2008. In December, Wells Fargo had $27 billion in outstanding asset-based loans.

Bank of America, the industry leader, has a lock on a third of the market. Meanwhile, JPMorgan Chase, the No. 3 asset-based lender in 2009, is expanding its 300-worker asset-based lending unit through the western U.S., a push that includes opening a new 10-person office in Irvine, Calif.

The initiative is already paying off. In recent weeks, the Wall Street giant injected capital into a California tomato-processor and a Seattle-based coffee-bean roaster. “These are exactly the kinds of businesses that we expected to help,” said John Goldthorpe, an executive who heads JPMorgan’s business credit unit. “We’re absolutely committed to the lower end, as well as the higher end.”

Still, as big banks slug it out for market share, a rash of boutiques and new players scooped up a lot of the demand that the bulge bracket deserted during the crisis.

TD Bank, a unit of Canadian-based TD Bank Financial Group, has grown aggressively in recent months and is looking to break into the “top tier” of asset-based lending, according to Barry A. Kastner, who was hired from Wachovia to head TD’s asset-based lending practice.

“We think there’s room for another significant player in the market,” Mr. Kastner said. “Typically we see demand in the struggling industries…and pretty much everybody is struggling these days.”

Asset-Based Lending 101

Who qualifies Asset-based lenders prefer to work with companies whose collateral can be quickly turned to cash if need be. Restaurants, retailers and others that collect credit-card payments are popular, though asset-based lenders are putting up cash against patents, real estate and heavy equipment used in manufacturing and farming.

What are the terms Asset-based lending rates are generally higher than those on traditional bank loans, but lower than most credit-card arrangements. Generally, the more liquid the asset put up as collateral, the lower the rate. Most asset-based lenders will only grant capital up to about 60% of the value of hard assets, and 80% of the value of accounts receivables.

What are the benefits Asset-based loans can typically be obtained more quickly and with less credit quality and financial covenants than more traditional financing. Many asset-based lenders specialize in specific industries and are more willing to craft terms based on business cycles and other elements particular to those sectors. Some lenders offer additional services, like payment processing and collections.

What are the drawbacks In addition to the relatively high rates, asset-based loans are secured; lenders can legally seize assets if the borrower misses payments. More traditional loans often offer more of a cushion in the event of dire financial straits

Private equity fundraising hits 5-year low

Sunday, January 17th, 2010

January 15th, 2010, 4:00 pm · posted by Jan Norman, small-business columnist

Private equity firms raised $135 billion in 2009, down 57% from 2008 and the least since 2004, according to PitchBook Data Inc., a private equity research firm. (Click on image for a larger view.) Source: Pitchbook Data Inc. Source: Pitchbook Data Inc. Private equity firms are major sources of capital for company acquisitions and debt restructuring. The number of funds raising capital declined 55% to 85, PitchBook said. Recently, Thomson Reuters said investments by private equity funds in 2009 plunged 81% from their highs in 2007. Private equity firms provided capital for almost 1 in every 5 deals in 2006, but in 2009 they funded just 6.5% of the deals., Thomson Reuters said. PitchBook’s report on fundraising indicates that private equity firms aren’t exactly beefing up for a big comeback. Firms that specialize in funding buyouts are still the giants in private equity, accounting for 39% of the fundraising in 2009, PitchBook said. The other fundraisers were:

* Venture capital, 23%

* Fund of funds, 16%

* Restructruring-distressed debt, 6%

* Expansion and mezzanine 4% each

* Other

The Great Venture Capital Fund-Raising Slump Of 2009

Tuesday, January 12th, 2010

By Venture Capital Dispatch

A continued lack of liquidity and increasingly bad 10-year track records took a toll for venture capital firms in 2009, leading to far less commitments by limited partners.

Although a few established firms with strong names and a few new firms with star investors had no trouble raising capital, overall VC fund-raising fell 54.6% to $13 billion across 120 funds from the $28.7 billion collected by 204 funds in 2008. It was the slowest year since 2003 for the sector. The data comes from the LP Source database, which like The Wall Street Journal, is owned by Dow Jones. Only capital that was raised in the 2009 calendar year was counted.

“When it comes to VC there are two camps,” said Terry Crikelair, managing partner at placement agent Champlain Advisors LLC. “There are those that think it will work again and those that think venture is dead. You look at the benchmarks over the last decade and the results are not trending nicely.”

All types of venture firms – early-stage, late-stage and multi-stage – faced a long, tough slog. Early-stage firms raised $5.3 billion across 69 funds, down 50.2% from $10.6 billion raised by 115 funds in 2008.

“Returns for early-stage venture have been heavily impacted because there hasn’t been a lot of liquidity over the last 10 years,” said Thaddeus Gray, a managing director at Abbott Capital Management. “The last good vintage year for early stage was in the late 1990s, and that is a long time for investors to wait.”

Late-stage firms raised just $781 million across eight funds, a 78.2% decrease from the $3.6 billion raised by 16 funds in 2008. Multi-stage firms, which have grown in number over the last few years, accounted for the largest slice of venture in 2009, raising $6.9 billion across 43 funds in 2009, a 51.6% drop from the $14.3 billion raised by 72 funds in 2008.

The multi-stage decline came despite the fund-raising efforts of New Enterprise Associates, which weighed in with $2.5 billion for NEA XIII LP, making it one of the largest venture funds ever raised. Demonstrating the difficulties facing the venture category, even NEA had to hire a placement agent and scale back its $3 billion goal. NEA’s fund still captured about 19% of all the capital raised by venture firms in 2009.

In Europe, the picture was even worse. Venture fund-raising fell 63% to $3.7 billion across 41 funds from $10.1 billion and 102 funds in 2008.

The European venture industry has long had a tougher time convincing investors to give it money than U.S. firms have, so it is no surprise that European firms would be facing extra hurdles as the entire VC industry struggles to generate liquidity for its investors.

Data from Dow Jones VentureSource shows that an already grim liquidity picture for European VCs got even worse in 2009, with 105 exits via M&A raising just $3 billion, versus 162 exits that raised $5.9 billion in 2008.

“There has been very little action in portfolios of venture funds in Europe in terms of exits,” said Klaus RŸhne, a partner at ATP Private Equity Partners.

-With reporting by Keenan Skelly and Russ Garland

Economic Thaw Stirs Employers

Monday, December 21st, 2009


The economy is primed for a stronger finish to 2009 than most forecasters and business executives expected just a few months ago, prompting tempered optimism that employers may resume hiring early in the next year.

“Growth through October far outpaced our expectations,” said Ben Herzon, an economist at Macroeconomic Advisers, a St. Louis forecasting firm that has been markedly optimistic. “It’s not an aberration that is going to give way to contraction in 2010. It’s the beginning of the recovery.”

While the economy’s strength in 2010 is still a matter of debate, a weekly consensus of forecasters compiled by Macroeconomic Advisers shows steadily rising estimates of fourth-quarter economic growth. At the end of August, the consensus saw 2% growth, at an inflation adjusted annual rate. Today, they see 3.9%. If realized, that would make fourth-quarter growth the best since the first quarter of 2006.

[Looking Better]

Forecasters at mutual-fund house T. Rowe Price have upped their forecast a full percentage point to 3.7% on stronger inventories. Macroeconomic Advisers have added a full percentage point, bringing its forecast to 4.1%.

Economists at RBS Securities raised their forecast to a robust 5%; at the beginning of November, they were forecasting 3.3%. “Something very real has developed, which is that the pace of recovery seems to be picking up steam relative to where we were three or four months ago,” said Stephen Stanley, chief U.S. economist at RBS.

Leonard Tannenbaum is surprised as anyone by the speed of economic thaw. Mr. Tannenbaum is chief executive of Fifth Street Finance Corp., a lender to dozens of small to midsize companies in sectors from cowboy boots to nursing services for Florida retirees.

For most of the past year, an index of about 30 of Fifth Street’s portfolio companies have seen profits fall each consecutive month. But the index saw profits grow the past two months, with retailers such as Boot Barn and Lighting by Gregory, a seller of lighting fixtures, emerging from their early year doldrums. “The economy really is turning,” says Mr. Tannenbaum. “The fact that the consumer is back is mind boggling.”

A broad swath of companies from shippers to makers of mining equipment, have reported signs of improvement in recent days. Software company Oracle Corp. reported sales and profit gains amid a rebound in tech spending, while the chief executive of FedEx Corp., the Memphis, Tenn., package-delivery company, declared the U.S. economy has reached a “turning point.”

With credit markets stabilizing and federal stimulus bolstering growth, economists have for months expected that 2009 would end with a growing economy, albeit a sluggish one. Incoming data over the past few weeks have bolstered optimism.

Earlier in December, the Commerce Department said wholesale inventories rose for the first time since August 2008 and that exports increased for the sixth straight month, as strength in foreign economies lifted demand for U.S. goods. The government also recently reported new evidence that consumers loosened their wallets in advance of the holiday shopping season. Retail sales, the government reported on Dec. 11, rose a seasonally adjusted 1.3% in November from the previous month.

Even the labor market is looking better. While the Labor Department said in early December that employers continued to shed jobs in November, it said they cut payrolls by only 11,000 jobs, the fewest since the recession began in December 2007. The department also said the average workweek rose and the temporary-help sector, an early indicator of employer trends, expanded for the fourth month.

Of course, the economy still has a long way to go before anyone declares it healthy. And some economists warn that restocking of shelves could boost production temporarily, but that oomph could fizzle out later in 2010.

Investment in equipment such as machinery or computers remains wobbly. New orders for non-defense capital goods were down 2.9% in October. “The question is once we get past this point, what does the economy look like?” said Zach Pandl, an economist at Nomura Securities. “It remains the big question for the outlook.” The Macroeconomic Advisers’ consensus sees slower growth — 3.3% — in the first quarter.

The Obama administration is now hopeful that employers may resume hiring in the early part of next year, after 23 months of shrinking payrolls. “The administration anticipates positive job growth by the spring,” said Christina Romer, chair of the White House’s Council of Economic Advisers, in a statement. “Obviously, the higher GDP growth is over the next few quarters, the sooner employment growth is likely to occur.” Still, it’s likely to take years to recover the 7.2 million jobs lost since December 2007.

The spate of better-than-expected data sets the Federal Reserve up for potentially challenging debates about interest rates in early 2010. Prices remain subdued and most Fed officials believe that high unemployment and other forms of economic slack will keep inflation down for a long time. That has given them comfort to say they’ll keep short-term interest rates near zero for an “extended period.”

Many senior Fed officials aren’t yet convinced that the fourth-quarter spurt will last. The Fed is projecting modest growth of 2.5% to 3.5% in 2010 and stronger growth in 2011, which means the unemployment rate will fall very gradually from current high levels.

—Jon Hilsenrath contributed to this article.