By  on August 5, 2008

The credit markets may still be tight for those looking for financing, but for anyone not yet ready to jump in, this is the perfect time to do one’s homework.

Chris Sciortino, a director of the investment banking unit of Robert W. Baird, said during a conference call last week that he expects it will be a year or two before the markets begin to loosen up and prospects for mergers and acquisitions start to improve. While there’s not an abundance of capital for investment yet, there’s still plenty of interest in the consumer sector among strategic and private equity firms.

“When [investors] jump in will depend on consumer spending,” he said.

He noted prospective buyers are being conservative because the consumer still seems to be pulling back. Still, investors are watching to determine when is the right time to make investments in the sector.

One key change will be that “more equity will be used in transactions, and less leverage used,” he said, noting the contrast from the past few years when relatively abundant liquidity allowed firms to leverage up on their acquisitions.

Another change is that firms will be focused more on high-quality concepts with prospects for vigorous growth. That’s a change from just before the subprime debacle a year ago when the “strength of the debt market” drove firms to consider even acquisitions where there was great cash flow and modest growth, but poor execution.

As the concerns over consumer spending grew, the pipeline for initial public offerings also shut down, Sciortino said. However, he expects the IPO market for the consumer sector to come back as well, once the current cycle reverses.

Many private equity firms “use the public market as a liquidity event for their portfolio,” he explained.

Metropark USA Inc., the lifestyle retailer founded in 2004 by chairman Orval Madden, who also founded teen retailer Hot Topic Inc. in 1988, is looking to go public in 2008.

“Our speculation is that’s a possibility, [but] by no means do we expect [an IPO] will be easy to get done in what we’re seeing in the environment today,” Sciortino said of the proposed timing for the Metropark IPO.

The director said it is “highly likely” the market will see other IPO filings once there is a positive change in the momentum in consumer trends. He noted specifically that high-growth retailers, or those that indicate earnings growth of 20 percent or more, will get rewarded by their ability to access the IPO market, giving their owners a measurement of liquidity for those businesses.

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