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 11 March 2009
Patrick Hurley: Shake-Out Strategies

Patrick Hurley founded investment banking firm MidMarket Capital Advisors after serving as head of Fleet M&A Advisors' Philadelphia office. He previously served as Partner and Director of M&A for Howard, Lawson & Company, which was acquired in 2000 and became the M&A unit of FleetBoston's capital markets group. He is the former chairman of the Association for Corporate Growth, which has 14,000 members in 54 chapters throughout North America and Europe. In Six Questions, Mr Hurley considers the road from crisis to prosperity.

Many have said that excessive lending and consumption were the catalysts for today's global downturn, and that trying to get banks to lend more and consumers to buy more are not the answers. Do you agree?
There was excessive spending and it was paid for in debt. That was the real problem. Consumers need stability. Banks need to make loans to businesses to fund working capital. Consumers need to see the decline in value of their most valuable asset stop before they will get back to a normal level of functionality.

In terms of finance, cash is king, and those with the resources at hand could go on a lucrative shopping spree. Do these same companies risk a backlash by appearing to dance on the graves of companies that couldn't manage, or will the white knight image prevail?
Shrewd businesspeople only dance behind closed doors because they realise that suppliers and customers are always watching in public appearances. The opportunities exist because of market realities, which do not necessarily improve solely because of the investment. This is all based on investment that does not hinge on the use of borrowed money.

The global downturn has also exposed the interconnections among global trading partners. While there are organisations such as the WTO and NAFTA, should there be more emphasis on global governance?
Regulation and governance are often separated into scorekeeping and standards as distinguished from management oversight by owner representatives. International accounting standards will be a big step in the right direction along with international securities industry regulation. Corporate governance is very different from industry regulation. The framework for protection of institutional ownership in the public market is already well designed; it just has to be enforced. The private sector is a more difficult challenge because of the intentional veil of privacy.

Are governments like those in the United States and Hong Kong on the right track when it comes to providing aid? What role should China play in the recovery efforts?
The market has decided that the US has not gotten it right yet, but that is changing as more accountability is being introduced. The current worldwide recession was caused by a finance problem that became a demand problem. Mark-to-market accounting as it exists is a mistake that led to problems becoming self-fulfilling. The slump in demand was natural as consumers felt poorer and withheld their spending.

The Chinese government knows to focus on stability and order above all else. The primary focus should be internal and aimed at driving internal demand.

Will the shake-out for SMEs and other businesses be different in different geographic locations? In other words, will Asian companies have an easier or harder time than American or European companies?
It will be different for each company no matter where they are. In general, the pain is driven by industry sector more than location, but better companies will cope better and spring back more successfully than followers because of discipline.

What's the best piece of advice you can give SMEs to help them survive in these difficult economic times?
Focus on what your successful customers really need and make clear to them that you can competitively deliver that, and focus on getting paid after delivery.

Patrick Hurley chaired the DealSource forum in January, as part of the Asian Financial Forum in Hong Kong.