Valuation In A Down Economy: For Solid Companies And Buyers, Opportunities Remain

Franchising.com:

As we have highlighted throughout 2007, the change in the economy we anticipated is finally upon us.

Rising commodity prices and an increasingly competitive marketplace have presented a more cautionary tone for franchise operators as consumers monitor their spending habits more closely than ever. Oil prices pulled back from prior record levels providing some relief for consumers; however in February, they closed at over $100 for the first time. And continued fallout from the sub-prime mortgage market, along with a significant downturn in the housing market, has directly affected consumers’ discretionary spending.

Additionally, merger and acquisition deal volume slowed dramatically in the fourth quarter as the debt markets for structured transactions experienced a decrease in overall liquidity and availability of capital. Financial institutions, many of whom are dealing with their own internal control issues, have become more conservative in their leverage advance rates and are demanding higher yields to account for changing risk dynamics in the marketplace.

So how do all of these negative signals affect the merger and acquisition marketplace?