U.S. Market Report Overview (from Flashwire Weekly)

As potential buyers hit their credit limit, sellers have to put in some of their own financing to help close a deal, says Charlene Davidson, Senior Managing Director at McGladrey Capital Markets LLC.

“We are seeing seller financing being used more often, either because the buyer requests it or the seller offers it,” Davidson said. Davidson said that many lenders are still able to provide financing, yet they are becoming much more stringent to whom they lend. Financing commitments have tighter covenants and lenders are scrutinizing inventories and other physical property more closely in asset-based loans.

Buyers, too, are putting in more protection on deals, with earn-outs becoming more common as a way to keep sellers on their toes after a deal. And material adverse change clauses are being written more specifically so buyers will have better ammunition to get out of a deal. For their part, sellers are calling for more break-up fees, especially in light of the many buyouts that have already gone awry.

Davidson says that deals, while they are still happening, are taking longer due to the increased diligence and more careful scrutiny from all sides.

“The volatility in the market is not normal,” Davidson said. “It can make somebody miserable one day, then happy the next. You want to be sure you have a tightly written deal so people can be satisfied with the outcome.”