Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

On a day like today (February 27, 2007) when the markets drop about four percent, one wonders what the impact on private companies will be.

First off, I don't want to sound dire because one rational answer to the question is "nothing."  That said, a four percent drop in the stock market is remarkable.  It matters.  I don't know the number, but we are talking many billions of dollars in value lost.  The market value decline of Microsoft (Nasdaq: MSFT) was over $10 billion today.  The Wall Street Journal noted this morning that the sell of in China earlier in the day caused a drop in value of more than $100 billion there; the drop here today was much larger.

With that as context, let me set out a few thoughts that arise on a day like today:

1)  Value:  The value of public stocks has a direct impact on the value of private companies because public companies are the benchmark against which private companies are measured.  Today's drop arguably pushes private company values back about two months.

2)  Access to Capital:  The public markets have not been viewed by many as providing great access to capital for some time.  I've certainly argued that for middle market companies, remaining or going private may represent a better strategy.  The economic news, inlcuding Alan Greenspan's comments that a recession could be in the offiing this year, are more relevant to private companies' access to capital.  While no one should panic, today is a good day to remember that the time to raise money is when you can get it--not necessarily when you need it!

3)  Exit Strategies:  Again, for middle market and venture back companies, the markets have not been overly friendly.  IPO's of venture backed companies were down last year from the peak.  We should expect to see this trend continue for the foreseeable future.  As for exits by acquisition, a softer stock market tends to put downward pressure on the M&A market as well.  What may be different in the current market is the huge overhang of private equity looking for a home.