The banking crisis may actually be a positive for M&A

As a new banking crisis rears its head private equality is expected to be burdened by continuous challenges with the spiraling withdrawal of traditional lenders from the market. Jesica Hamline’s article, Banking crisis puts pressure on PE money supply, goes into the possible wave of effects due to the deterioration of the banking industry.

With the recent collapse of both Silicon Valley Bank and Signature Bank confidence in banks is at a new low and many GPs are moving towards alternative capital deployment. A new trend of more robust debt lending practices is creating a standstill for bank-led LBOs.

The unique aspect of the current banking crisis is its core, the smaller regional banks. This change in the market is making PE investors' eyes shift to investments that rely less on a series of loans and instead on majority equity transactions in order to avoid loans as strongly as possible. It can be reasonably assumed and has shown to be true so far that the majority of PE deals in the recent future will be within middle-market funds (100 million - 5 billion) as they provide a safer, less loan-dependent investment that will be more acclimated to the current market.

Despite these evolving circumstances deal flow is expected to continue without faltering due to a surplus of cash that has yet to be called by investment managers. These funds will likely be more focused than ever in the middle market with the median take-private deal rapidly trending towards lower transaction size. A more confident middle market could take the PE world in a new direction.