2022年夏季通讯

SUMMER 2022 FROM THE CEO THOUGHTS AT THEHALF-WAY MARK Heading into 2022, we were focused on the boomin growth and activity creating a long-lastingsupercycle thanks to five key factors aligning—stability, availability of capital, investor and buyerwillingness to accept risk, technology transitionand innovation, and low interest rates. •We expect rising interest rateswill push the U.S. economy intoa recession, leading to a healthytightening of the market. What happened to that supercycle in the firsthalf of 2022? The fifth underpinning factor—lowinterest rates—went away as the Federal Reserveshifted from calling inflation “transitory” tobelatedly taking actions against it with a seriesof interest rate hikes they have indicated willcontinue throughout the year. The rate rises willresult in four possible outcomes, listed in orderof increasing risk: a slowdown with no recession(aka: a soft landing), a recession, a credit marketimplosion similar to 2008, and stagflation. •Deal activity is still robust, but buyerand investor scrutiny has intensifiedwhile astronomic prices have muted. •PE buyers are more likely to closethan strategic buyers given thevolatility of public markets. •Business owners contemplatingselling need to go to market in thenext quarter or run the risk of owningtheir business for another three-to-five years. We believe the second outcome is most likely,with rate rises pushing the U.S. economy into arecession that could have been avoided. In thisscenario, weaker companies that raised a lot ofmoney but are not making money will be clearedout, and stronger companies will be forced to cut fat. We expect this will lead to a healthy tighteningof the market and set things up for a rebound aftera four-to-six-month recession. But thanks to a series of fiscal and monetarypolicy missteps along with a far too slow responsetime, many market participants have lost so muchconfidence in the Biden Administration, Congress,and the Fed that they are expecting stagflation—the worst possible scenario most of us have never Confidence has plummeted in the lastfour-to-six weeks, with heightenedemotions running the risk of creatinga self-fulfilling prophecy. To read more about how the downturn is impactingCascadia clients, turn to page 4 for perspectivesfrom our bankers. lived through. Confidence has plummeted in thelastsix weeks, with heightened emotions running therisk ofcreating a self-fulfilling prophecy. AN URGENCY TO SELL SEEING IT BEFORE BELIEVING IT As confidence has collapsed over the last sixweeks, business owners are experiencing anunderstandably wide range of emotions. Ownersin their sixties or seventies are observing whatis happening and want to avoid going throughanother period like 2008 when they will not be ableto sell their business. We are seeing many clientson the West Coast wanting to sell and move away,particularly in markets like Los Angeles. There is asense of urgency to sell before the window shuts. Despite widespread pessimism, deal activitycontinues to be robust. But now there is a greaterrisk of deals folding at the last minute, particularlyif a public company buyer is involved. Valuationsare still good, but we are not seeing the spike bidsthat were commonplace last year. Though theastronomic prices are gone, buyer scrutiny is moreintense than ever. We have entered a “show me”world where buyers are demanding concrete proof.They need to see it before believing it; once they dosee it, they are willing to value and pay for it. And while sellers are typically reluctant to adjustto a lower price, many want to sell now even if theprice is 10 to 20 percent off what it would havebeen six months ago. If a company is looking to sell and has a strongpipeline, buyers want it converted to revenue beforecounting it. Buyers are also on the lookout for anysupply chain issues—today or six months down theline—as COVID complexity has been layered withthe Russian-Ukraine war complexity, just as theolder issues were starting to correct themselves.In particular, investors are scrutinizing supplychains in food sectors using grain as the main input.Companies will need to explain how their supplychain would be impacted if Putin blocks grainexports from Ukraine. Even if it is not a problemright now, businesses need to show they areanticipating future issues. Given how easily buyers can bespooked in this market, one detailgoing wrong can be a permanentdeal killer. At Cascadia, we are working closely with our clientsto ensure there are no proverbial skeletons beforegoing to market. Given how easily buyers can bespooked in this market, one detail going wrong canbe a permanent deal killer. Sellers must be ready,ensuring their books are transparent and airtightso buyers will not find anything that was notrevealed or represented accurately. Amidst the current challenges, food sectors withoutgrain supply chain risk and healthcare sectorsacross the board are thriving. Both are necessitiesdespite the downt