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Paul McMenamin, Partner, Warshaw Burstein Cohn Schlesinger & Kuh, LLP

Paul McMenamin sees a big stumbling block out there in deal land right now, and that’s trepidation. His advice to buyout shops: “Don’t let trepidation get in the way of deal-making. Because at the end of the day, there’s a limited amount of deals, and you’ve got capital to deploy and a finite time horizon over which to do it.”

McMenamin, a 20-year veteran deal-maker who serves as matchmaker between PE firms and portfolio companies in media, publishing, and technology industries, is seeing deals get done in those markets, but “it’s not what it once was,” he said. Private equity once got involved in much more risky deals; now they just don’t want that risk, he said, probably because of current market conditions and what’s happened over the last two years.

He’s seeing companies that have great growth stories that have not been able to attract the right type of private equity investor. He knows of one technology company that has excellent prospects, he said. “It’s got nice trailing numbers and a compelling growth story.” Two private equity groups did eight months of due diligence on it, and the deal was four days away from closing. But there was uncertainty as to some top-line revenue timing. “That alone made those two private equity firms decide to take a pass on the business. They wanted to see a revenue target that was met within a certain time frame. So based on that, they decided to walk away from the deal.”

This was not just a one-off event, explained McMenamin, but a recurring phenomenon. “Some of these groups, it’s funny, they kick the tires until the tires come off, and then they walk away. It’s hard for them because of pressure from their limited partners to do deals with as little risk as possible.

So how does a buyout shop get a deal done these days? His advice is, if a company has got traction, if it’s got revenue, if you can see profitability, then it comes down to execution risk, meaning you’ve got to decide if the management team can do what they say they will do. “I’m a big believer that you’re investing in management. So if you have faith in the management team, have faith in the deal,” he said.

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