A number of mid-market firms have laid off employees and shut offices as the industry suffers from a deal drought.
Bank of Ireland laid off 10% of its staff about a month ago, says a source close to the situation. It doesn’t plan any further reductions, and has about 30 on its staff now. The layoffs are concentrated in the origination side and were driven by a lack of deal flow. Bank of Ireland declined to comment.
Orix, a Dallas-based asset management arm of Orix Corp., shut down its Chicago operations and consolidated much of its New York middle market leveraged lending staff in Dallas, two sources said. The firm did not respond to a request for comment.
NewStar Financial, a Boston-based commercial finance company, laid off a handful of originators who were working from their home offices in Chicago, South Carolina and San Diego, two sources said. The firm did not respond to a request for comment.
National City held layoffs in mid-February, letting go both originators and portfolio managers in Cleveland. The layoffs affected much of the middle-market sponsor group, a source said. National City declined to comment.
Mid-market lender Freeport Financial laid off most of its 23 employees. The Chicago-based firm’s remaining professionals will help manage the existing portfolio, which currently has just over 60 loans. Freeport was formed about five years ago, with the backing of hedge fund manager Stark Investments. A source says that Stark is not interested in selling off the existing Freeport credits, believing that it has a better chance to recoup its money by winding down the portfolio over time.
Churchill Financial laid off about one-third of its staffers. Most of the cuts came on the deal origination side. “The number of origination folks we had compared to the number of deals we had was just out of whack,” says a source within Churchill. “These were good people in a bad situation. It didn’t have anything to do with them individually… If things turn around, I’d imagine we’d jump right back into hiring mode.”
Among those let go were Chicago-based managing director Kevin Murray, some senior members of the firm’s Boston office and a mezzanine pro in Los Angeles.
This all doesn’t bode well for the middle market lending world, especially when considering the distress recently experienced by business development corporations, such as American Capital, which is expected to request another waiver on its credit facility; Allied Capital, which recently defaulted on its revolving credit facility; and CapitalSource, which would have done the same had it not obtained a waiver from Wachovia Corp. and Bank of America, according to peHUB, which is affiliated with PE Week.
But for buyout pros seeking finance, it’s not the end of deal-doing. The layoffs don’t necessarily indicate a lender is in distress; it means there’s no deal flow. Lenders are experiencing the effects of the empty pipeline, a ripple effect of the Lehman Brothers crash. Until companies feel comfortable enough to start selling, M&A action will remain motionless, and the private equity money on the sidelines will continue to do just that. —Erin Griffith and Dan Primack