Today's environment has led to delayed M&A transactions, delayed capital raises, and limited access to bank/senior lender credit, which has created liquidity needs for many lower middle market businesses across the country. While these businesses scramble to gain access to liquidity via existing lenders and the SBA (and other federal, state, and local programs), the timing and amount of that capital available remains unclear.
While investors are certainly being cautious in this environment given the continued uncertainty they are actively deploying capital for the following credit profiles:
Target: High Net Worth Entrepreneur ("PFS Loan")
Characteristics: Asset rich, liquidity constrained entrepreneurs in need of short-term cash infusion or bridge loan where speed and certainty to close are required. We enable entrepreneurs to leverage the equity in their personal assets that traditional lenders will not consider or cannot close fast enough.
Structure: Flexible security positions around financing situation, cash flow, and available collateral.
Recent Example: Real estate developer required capital to paydown a margin line and to fund operating expenses. Firm A proposed a $5MM loan secured by a 2nd lien on marketable securities (behind margin line) and a second deed of trust on a specific property.
(Firm A is able to close within 1 - 2 weeks)
Target: Software/Recurring Revenue
Characteristics: Need to extend runway due to delayed M&A/capital raise activity or seeking non-dilutive growth capital. Typically too small for tech banks/venture debt funds and/or no big name VCs involved. $4MM or greater annual recurring revenue (ARR) and strong retention rates.
Structure: 1st Lien or 2nd Lien
Recent Example: $6MM ARR SaaS company's planned Series B raise in the summer is going to be delayed due to the current environment. Firm A proposed a $2MM 1st lien facility to extend the Company's runway 12+ months.
Target: Senior Secured (Collateral Based and/or Cash Flow)
Characteristics: Company does not qualify for conventional financing or didn't previously need outside financing. Traditional financing options (bank, ABL, factoring, cash flow/unitranche) not a viable option for the company due to insufficient availability from traditional collateral advance rates, nature of assets, billing cycle, and/or lack of speed & flexibility to close the transaction.
Structure: 1st Lien
Recent Example: Company with $6MM of TTM EBITDA and $3MM of accounts receivable needed $9MM to complete a shareholder buyout. Firm A proposed a $9MM 1st lien facility structured around accounts receivable and cash flow.
Target: For new investments, rather than add-on acquisitions, Firm B typically invests in companies with pre-tax profits of $2-10MM and revenues from $8-$100MM.
Geography: U.S. or Canada
Industries: Having been in 60+ industries, Firm B can quickly determine how attractive a particular opportunity is to them. While very opportunistic, the Firm B team has enjoyed great success with manufacturing, mission-critical industrial service, business services, value-added distribution sectors, and enthusiast-driven branded consumer products.
Industrial product manufacturing where the non-commodity products have some engineering content, customer problem-solving aspect, or customization
Industrial services that are not commoditized, often maintaining, preserving or optimizing the performance of valuable industrial assets
Enthusiast-driven branded consumer products
Transaction Types: Firm B invests and has extensive experience in Recapitalizations, Family Succession Recapitalizations, Management Buy-Outs, Management Buy-Ins, Industry Consolidations, and Select Underperformers.
Industry Sectors: Fund C is industry agnostic but tends to focus on established businesses within the following sectors. They do not invest in start-up or early-stage businesses.
Branded food and consumer packaged goods
Engineered industrial components sold B2B
Manufactured commercial & consumer products
Building products and materials
Distribution, logistics and other outsourced business services
Industrial minerals and metals
Rubber and plastics
Recurring revenue (>$10 million)
Stable track record of profitability
Gross margins > 30%
EBITDA $1 to 8 million ( >10% margin, preference for >15%)
Return on Equity > 30% of equity capital deployed
Demonstrated history of positive cash generation
High quality managers with a proven track record of success
Sustainable competitive advantages or niche
Unique or proprietary manufacturing processes
Proprietary sourcing capabilities
Unique or advantageous distribution capability or strategy
Best in class service capabilities or other value-add
Clearly defined paths for growth
Eastern half of the U.S.
Will consider investments in the Northern Rockies
We stand committed to helping our clients find the capital they need to move their companies forward.