SOURCE: Cascadia Capital

Cascadia Capital

January 08, 2013 09:00 ET

Cascadia Capital's Middle Market Group Offers Roadmap for Navigating Market Challenges in 2013

Market and Regulatory Uncertainty Warrant a Wait-and-See Approach for Q1

SEATTLE, WA--(Marketwire - Jan 8, 2013) - Cascadia Capital (cascadiacapital.com), a diversified, boutique investment bank serving both private and public growth companies in the region and around the globe, today announced its 2013 forecast for Pacific Northwest middle market companies. Based on substantial current deal experience and insights from clients, Cascadia expects to see a continued slowdown in M&A deal activity through the first quarter of 2013 as strategic and private equity buyers grapple with capital markets and economic uncertainty. 

"M&A volume in 2013 will be dependent on long-term economic stability," said Christian Schiller, Managing Director of Cascadia's Middle Market Practice. "Uncertainty is bad for the M&A, and currently we have too much of it. Absent greater surety around economic growth, government debt reduction, and personal and corporate tax policy, buyers and investors will continue to shore up reserves while they wait for more clarity from policy makers."

Faced with these challenges, companies looking for liquidity in 2013 need to build out a strategic roadmap, taking into consideration both their place within the market, as well as overall political and economic conditions. Recommended strategies include:

1) Know How to Play the Waiting Game - During the balance of 2012, Cascadia anticipates clarity will emerge around many of the factors currently weighing down the capital markets. How Congress reconciles the fiscal cliff will be the first critical step toward defining expectations for 2013. While Congress enacted stop-gap measures to prevent the country from "going over the cliff," on January 1, a number of key issues, such as sequestration and the debt ceiling, remain unresolved and given the tenor of recent debate it is unlikely reasonable heads will prevail among policy makers. We believe that, in order to maintain momentum in our recovery process, Congress may extend many of the Bush-era tax cuts, including the capital gains tax cut for the majority of Americans. This, in combination with continued economic momentum, will lead to improved deal-making conditions and better valuations starting likely in the second quarter of 2013. 

2) Waiting is Prudent, but Be Ready and Don't Delay - Once the dust has settled, companies looking for liquidity should act deliberately. Barring ongoing uncertainty, Cascadia recommends actively beginning the deal process during the second quarter of 2013. This will ensure that there is enough time to take advantage of the extended favorable tax window. By getting an early start on the deal process, prospective sellers will have time to work on improving the business, tightening up financials, and getting their due diligence ducks in a row, all of which will have a material impact on assuring an efficient deal process and higher valuations. Unprepared companies will face pressure on valuation and experience risk related to certainty of close.

3.) Recognize that Headlines are Often Overhyped - We often hear in the news about how much cash is out there chasing deals. While that is true for companies with a specific profile, it is not a "one size fits all" market. While the headlines herald a robust M&A market, companies need to separate hype from their specific situation. Only the best companies -- those with scale, solid growth prospects, top tier management teams, and diversified customer bases -- are garnering outsized multiples. While these "A" companies can expect continued interest even in the face of economic challenges and political uncertainty, the balance of the market needs to be realistic. Ground your valuation expectations on a conservative basis for the reality of your business and industry, and only engage a sale process if those expectations hold a high degree of certainty in your market. If the market realities of your company specific valuation do not meet your objectives, wait until you can achieve your valuation with a higher degree of certainty.

 "At the end of 2011, there were great expectations for deal volume and valuations in 2012 to hit peak levels. Many anticipated that the Bush-era tax cuts would be allowed to expire on December 31, 2012, prompting a rush for the exits, consistent with past cycles," said Bryan Jaffe, Managing Director of the Middle Markets practice at Cascadia Capital. "However, the 2012 elections, domestic and global economic upheaval, and general uncertainty in the markets negatively impacted deal volumes and valuations. In 2013, we expect to see a similarly cautious approach on the part of buyers and sellers through the first part of the year, but then expect a very strong uptick in both activity and valuations through the rest of the year. We counsel companies considering an exit to not wait past Q2 to begin exploring their options, and to use the wait time to optimize their business and do the work to properly prepare their company for the process."

About Cascadia Capital, LLC
Cascadia Capital is a diversified, boutique investment bank serving both private and public growth companies around the globe. Cascadia's business is diversified in terms of the industries the firm covers -- Information Technology, Sustainable Industries and Middle Market -- and in terms of the range of advisory services it provides -- Mergers and Acquisitions, Corporate Financing and Strategic Advising. This diversification provides the firm with stability amidst market fluctuations. Cascadia is a pure advisory firm, and unlike other investment banks, is not conflicted by trading, lending, research or cross-selling business. For over a decade, the firm has delivered the best outcomes for clients based on its transaction experience, domain expertise and commitment to building long-term relationships. Cascadia always acts in the long-term interests of clients, and honors its position as a trusted advisor. For more information, visit http://www.cascadiacapital.com.

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