“There are two times in your life when you shouldn’t speculate: when you can’t afford to, and when you can.” – Mark Twain

Intergrowth 2019 this week in Orlando came at a propitious time, at least as far as our lender survey on valuations goes.

One long-time NYC-based middle market practitioner weighed in with a view on enterprise value: “We look at historic EV rather than just where current levels are,” he said. “For most of the businesses we lend to that means 7-9 times ebitda, not 10-12.

“And we look closely at other private comps. It’s helpful to research other sponsors who have invested in similar borrowers. What have those valuations been? Then when we set covenants, we’re doing so within realistic equity multiples.”

Another midcap lender blamed inflated sponsor expectations for IRRs. “They sell investors on 20 or 25%,” he said, “when the reality today is well inside that. Then they’re ponying up 10x-plus multiples on the buy-side. The math just doesn’t work.”