Tuesday, August 7, 2007

Global Debt Markets bring PE deals to a snails pace while B2B distributors continue to post strong results

In the weeks since my last post we have seen the global debt markets grind to halt as the result of increasing concerns about the sub-prime market. The obvious fear is that without an ample supply of cheap debt many leveraged buy-out deals will be delayed or fall apart all together. I am not calling time of death on the LBO market yet but today's announcement by Virgin Media is concerning. The company announced today that they are delaying the auction process for the company so that bidders "can complete their proposals in a more stable debt market environment." The question moving forward is two fold in my mind - first how long will the dark media clouds hang over the debt market? And two, will deals for conservatively leveraged companies with strong cash flows move forward in the interim. This will be an interesting story to follow moving forward particularly as it relates to industrial and B2B distributors.

In other news today Henry Schein posted strong second quarter revenues and raised the lower end of their earnings forecast - further evidence of underlying strength in the economy. Since my last post we have seen a drop in ISM's Manufacturing Index from 56 to 53.8. Despite the drop I remain bullish about the MRO market in the domestic market as long as the index remains above 50.