Opinion: Paul Spires

If a recent survey into the mind of entrepreneurs is correct, the old adage that "adversity brings opportunity" seems to hold true.

76% of the respondents in the "Global Entrepreneur Indicator" Survey expected to hire more staff over the coming year, with 96% predicting that no redundancies will be made in their companies during this same period.

Furthermore, 80% of the respondents believed the economy of their own country will either improve or remain static over the coming quarter, with 34% expecting an improvement.

Although these figures fall to 70% and 27% respectively when only European Entrepreneurs are considered, they give a timely reminder of the building confidence of many business owners despite the continuing doom and gloom in the press and talk of a double dip recession. It is exactly these types of individuals which are the lifeblood of Western economies and whose confidence will drive the recovery.

With many private equity backed firms loaded with debt, much of which needs to be refinanced in the coming months and years, the resurgence of interest in an IPO as an exit option seemed like the perfect "get out" solution. Whilst debt remains expensive and difficult to obtain it makes it all the more harder to exit at a high return, especially for those private equity players who bought at the top of the market.

With the news that New Look has followed the Merlin and Travelport example of scrapping their flotation plans, the magic bullet of flotation looks set to remain elusive for some time yet, especially for the largest private equity backed deals.

The insurers, large pension funds and other institutions which tend to buy up the majority of shares on new company listings seem to have got wise to the dangers of overpaying. With the FTSE still over 5,000, up from the low of 3,500 in March 2009 they are not the only ones who are questioning if share prices have peaked - after all, why else was there the apparent rush by large private equity backed businesses to the IPO option now?

Whilst problems therefore remain for the mega private equity deals which were done at the top of the market, the opportunities in the mid market have undoubtedly been improving. Pent up demand to do deals has been growing over the last 18 months - vendors are thinking what am I waiting for? (Except capital gains tax rises!), appetite has been increasing from potential trade acquirors and both primary and secondary private equity backed buyouts are back on the agenda.

The mid-market equity players can't sit on their hands for ever - ultimately they need to invest money to make money. These changes in part at least have coincided with the gradual change in the attitude of banks to one where writing cheques to support mid- market deals (typically £50m in value) is now back in the realms of the possible and not just to support existing clients. Whilst still by no means easy to raise new debt, for high quality businesses at least the doors seem to be opening.

Now could be as good a time as any to get a foot in the door.

The last few weeks have actually been pretty refreshing in respect to some of the meetings I have had with banks. Whereas 6 months along the majority may as well have brought a noose along with them to meetings, many of the bankers I am seeing have, dare I say it, begun to show glimpses of optimism. That is not to say that getting bank debt into a transaction is easy, it is not and remains challenging, especially where a non incumbent bank is involved, but more that there is a growing sense that the credit committee constraints that tied their hands to write new cheques is easing and some appetite to do deals is returning.

However, due to the relatively low competitive pressure in the banking market the pricing of bank debt will remain relatively high, terms tight and quantum of available lend restricted for the foreseeable future . It will undoubtedly take some time to improve significantly and it is highly unlikely to ever return to the levels and terms at the height of the credit bubble, quite rightly in my opinion.

Nevertheless, whilst banks can talk the talk of doing deals the proof is in the pudding and the preference towards favouring deals supporting existing customers rather than new lends continues, due to their over-riding fear of the unknown. Traditional banker prudence has returned but the pendulum remains stubbornly stuck to the one side and the inertia will take many more months to ease.

Banks remain cautious to back the right horses and in many cases the banks have been looking for reasons not to lend rather than the other way around. Having an understanding of each of the key lenders current appetite for debt, which is changing on a daily basis, is critical in getting deals to the finishing line in the current market.

At Catalyst, it is our job as advisers to understand who is genuinely open for business and also to truly understand the risks and mitigating factors underlying the businesses and transaction structure from the banks perspective, whether that be a pure refinancing, support for an acquisition or an MBO. The more homework that can be done upfront, the better the chances of a successful transaction.