Clear Rock has several buyers that are seeking to squeeze in a deal to buy an insurance agency before the Holidays.  

Now that the election is over, and it seems more likely that capital gains taxes will rise in the next year, it is a great time to take advantage of not only getting a deal done, but  also allocating a portion of the price at the historically low 15% long term capital gains

Last night the Fed announced another $38bn infusion into AIG. Curious, of course, is how they decided to word the transaction: the Fed is "borrowing" certain assets in return for "cash collateral." While a cash collateral is a perfectly legitimate transaction structure, we believe that this is just a cumbersome attempt to obscure a second recapitalization of AIG in under 2 weeks.

Granted,

So we continue to hear about the credit crisis - and a lot fo that talk continues to center around the commercial paper market. When we hear problems about liquidity in the market, etc. the reference is often to this short term paper market - not the longer term loans and lines of credit that middle market companies rely on.

So what is commercial paper? And why is it important? Simply explain, its a short term loan used to finance operations. Although it can take several forms, it is a security instrument that matures in under 270 days and is exempt from SEC oversight. Large corporations and financial institutions are able to issue paper - in return for the promise of repayment and a yield - much more cheaply than they could access a line of credit from a bank.

At issue, now, is that that market has evaporated for all but the strongest companies, and liquidity at the far end of the yield curve is much more effect. This is highlighted by the current run on the Fed's "borrowing window," which as of Friday (October 4) had loaned $348b to banks. With the commercial market frozen, they are forced to tap the Fed lending window to access short term liquidity.

And here is the trickle down effect: on the corporate side, triple A rate companies such as General Electric are able to still sell, but others are having bigger problems. Those that cannot go to banks. According to Bloomberg, "Lenders are balking at offering cash for longer than a day even as central banks pump an unprecedented amount of money into the banking system." Companies then, in turn, must tap more expensive lines of credit.

And thus the trickle-down effect: with large corporations facing increased financing expenses and a working capital crunch, smaller companies can expect:

• Less favorable AR / AP terms
• Increased financing expenses
• More difficulty / scrutiny accessing lines of credit, etc

Of course the credit crisis is complex - especially if CDO's, CLO's, credit default swaps, and mortgage backed securities are not part of your every day conversation. That in mind, we thought we'd add this as a back ground primer- Marketplace does a good job at explaining one of the conerstone issues of the crisis - mortgage securitization and CDO's.

In yet another scary missive about the state of AIG, the New York Times writes today that AIG had already drawn down $61b of their newly minted $85b line of credit. In concert, S&P has issued yet another warning on AIG.

All this calls into question whether the Fed's emergency intervention with AIG will be the end of the bail-out, or rather somewhere around half-time.

Of interest for Agencies,

Information Arbitrage (a great read by the way) had a post regarding the future of Investment Banks. The whole post is worth a read, but a tidbit that we certainly agree with:

 

Investment Banking 2.0 will be the re-emergence of the boutique, the focused, nimble, high-touch firm that was the bedrock of capital formation in the early years of the stock market boom. Because these mega-firms being created at the urging of the Treasury are not sustainable.

This couldn't be more true for mid-market companies.  The bulge bracket banks have been focused on returns trading complex products on their own account.  And while M&A is always a fee multiplier in a bulge bracket bank, more recently other products have taken center stage.

As a middle market company, your needs are different.  You need a "high touch" firm that can offer expertise when you need it - namely when you need to recap, or are working through an acquisition.  The boutique is just what the doctor ordered.

CHG Healthcare, one of the oldest and largest healthcare staffing firms in the United States, announced in late September it has acquired AHR Pharmacy Solutions. Terms of the deal were not disclosed.

Deal Motivations: Defensible Market Niche

Although CHG is already regarded as one of the top healthcare staffing firms in the United States, they are always looking for ways to capture more

Taleo, a leading on demand recruiting company for small to medium sized businesses announced in late September it merged with HRhome, an online resource center for HR professionals. Terms of the deal were not disclosed.

What Were They Thinking?

• Increased service offerings
• Wide customer base

HRhome, a provider of tools and processes to ensure employees are hired and managed

Interesting article in the WSJ deal book this morning - basically confirming what we have been seeing in the market place. In sum: deals are trending downward in size, and the lower-middle market remains surprisingly strong.

The simple reason? Less leverage on deals. Historically these companies have transacted for far lower multiples than their PubCo and much larger cousins. And in an

Brian  Burke will be hosting a conference call today at 2 p.m. to discuss the AIG situation and how it is likely to impact agency owners.  

Conference Dial-in Number: (269) 320-8100
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