The M&A world, and particularly larger transactions, are driven by the availability of cheap credit. We have all certainly seen the ebb and flow in the credit markets - from easy lending terms in the 90s, to a tightening during the 9/11 era recession, and back to an abundance or credit availability in recent years.

The current cycle of tighter credit will certainly have an effect on the M&A Market. The leading edge of that market seems to be the larger / mega-deals. See "Bam! Easy Credit Evaporates and So Does the Buyout Frenzy" in the New York Times. We have seen a number of deals either altered (e.g. Home Depot buyout for their wholesale division, TXU buyout) to the Cadberry Schweppes deal (put on hold).

Many of these deals are Private Equity sponsored deals. PE Funds certainly seek aggressive leverage levels in order to generate big returns. Without access to the debt markets and favorable rates, these mega-deals become untenable.

So what of the middle market? Smaller deals have always been a bit different. Lack of either cash flow or sufficient collateralization has doomed many a mid-market seller. What does this mean for buyers and sellers in the mid-market and lower-mid-market?

• Expect tighter lending requirements
• Expect greater scrutiny on your pro forma projections.
• Once an acquisition closes, routinely conduct sensitivity testing to ensure compliance with your loans' covenants. If you sense problems, address early with your lender. Remember, no banker likes a surprise.
• Continue to tap private sources of capital. As the old saying goes- "friends, family, and fools." As the debt market tightens, keep those in mind when you have a deal you need to get done.
• At the lowest end of the middle-market, lean on the SBA 7(a) program. If you fit under the $2m cap, this is a great source of debt. It might be a bit more expensive, but you will get your under-collateralized deal done.