ESOPs Offer Relief in Today’s Constrained Financing Environment

In my 30 years as an investment banker to private and family-owned businesses, I have never seen the borrowing climate for deals change so sharply as it did in 2022. Financing for M&A and private equity transactions deteriorated dramatically as the year progressed, with third-quarter M&A financing down 70% from the previous quarter and buyout financing during the period less than half that completed in the first quarter.

Why? Ask the Fed. Belatedly concluding that its tepid measures to reduce inflation to its 2% target weren’t working, the Fed in mid-2022 initiated four consecutive 75 basis point rate increases. The velocity and size of these rate increases caught people

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