Who is the untold winner in this market?  

Mergers & Acquisitions magazine published an excellent piece this week, by Keith Button entitled, High prices for deals push private equity firms to retool acquisition strategies. Of the many salient points, one that emerged for me was the impact that non-bank lenders are having on the middle-market, given the amount of dry powder and perpetually high valuations that are plaguing investors. Per Button, these lenders have capitalized on circumstances in the middle-market since the end of the 2008 financial crisis, partly due to their unique capacity to provide cash-flow-based lending.

Current market conditions seem to be a great benefit for these types of lenders. And if it’s true, by what means can these lenders – or any lender, for that matter – capitalize on relationships for future deal flow?

Benefits from the boutiques

Analyzing a sponsor league table, and it’s remarkable to note that 78% of sponsors complete 3 deals or less in a single year period. That is a real opportunity for lenders to grow relationships with appropriate boutique funds, especially since better deal selection often equates better returns. Now, in what manner can a lender intelligently cover these relevant firms to ensure that the next investment made by these sponsors is financed by their firm?

To exploit the opportunities for lenders in this market, as well as cover those relevant boutique sponsors, IA practices should be implemented that facilitate and scale the relationship building process.

Using automation tools available from the SPS Portal, lenders can ascertain if a sponsor works with a variety of different mezzanine or senior lenders. In fact, as reported in a recent Source post, that discussed the variance of activity from the top five most active mezzanine lenders, the most active mezzanine lender saw 27% of deals from their top three sponsor relationships. Furthermore, ~33% of deals that closed with a mezzanine component from the five most active mezzanine lenders derived from their top three most active sponsor relationships. Conclusion: relationships matter and are lucrative.

Sure, but what can robots really do to increase deal flow?

Using robots to do the manual labor will alleviate the stresses and time constraints of sifting through data to find a hidden gem (forgive the cliché). For example, robots can track individual sponsors to know which firms are increasingly more active, or may have added a new hire recently.

Perhaps more discreetly, has a sponsor that you thought you knew well been working with another lender as of late? Consult the robots. Is a sponsor that you would like to do business with acquiring firms in a certain geographic region? Perhaps your firm can help them penetrate this market. Did the sponsor’s mandate suddenly change, and the fund is closing more deals in the $250M-$500M EV space, as opposed to their former sweet spot in the sub-$250M? Robots will keep you informed.

Your time is too precious to dig through the data, let the robots, or other forms of intelligent automation, track this information for your business, and get you back to your day job.


Last week’s deals today

February 12 – February 16, 2018

~111 deals traded!

Deal of the week

In an all-cash transaction, Thoma Bravo purchased Barracuda Networks for $1.6 B last week. Morgan Stanley acted as the sell-side intermediary. Wilson Sonsini Goodrich & Rosati acted as the sell-side legal advisor.

Most active subsectors
  • IT: Software & Services
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  • Financial: Services
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Most active cities
  • New York
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  • Austin
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  • San Francisco



Photo by G. Crescoli on Unsplash.

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