Now this is an interesting question. If so, this affects valuations, which we know have been all over the map, ranging from 5X to 12X...OMG! Remember discount factors? Remember when lack of geographic diversification was a bad idea? Remember the old days when a "rapid unit expansion strategy" was acceptable?
So how bad is it? Are deals getting done? Is Chapman still the big dog and prognosticator of all things M&A? Will GE close its doors to restaurants and finally stop its bait and switch term sheets? Will 5 unit regional (albiet local) chains finally take a reality pill and stop benchmarking their valuation to Mastro's and Claim Jumper?
Here's my sense for 2008
1. Deals will always get done, so deals will get done.
2. Deals will take longer and sellers will have to accept lower valuations, period. Buyers always trail sellers' thinking, so in 2008, sellers will finally catch up with buyer multiples.
3. Instead of 3.5-4X EBITDA coverage ratios, 2.5 and 3.0X EBITDA margins will be the rule for leverage. This will dilute buyers equity and put fundless sponsors on hold for a bit. Ok, back to being a consultant.
4. More and more go-privates. Even crappy public companies will look to sell primarily to save $1 million a year in SOX, audits and reporting fees. Get ready for heated auctions here.
5. CEO's still rule, but don't know it. Come on guys, stand up and take some power away from the private equity funds. They need you and can't do a deal without you. Ask for more. If you need a coach, call me.