How Litmus Advisory sourced £4.5 million to rescue the BIMBO of Italian food business Donatantonio
With banks slashing the amount of debt they are willing to provide private equity houses in leveraged buy-outs, asset-based debt is becoming increasingly competitive and is filling the leverage finance gap.
Dave Edwards, director of specialist debt advisory firm, Litmus Advisory, observes: “We are seeing banks pulling back from leveraged buy-outs currently in the pipeline. Of equal significance is that banks are ramping up their recovery departments to cope with the increasing number of underperforming loans in their portfolios.
“Market conditions in the primary, secondary and distressed lending markets are favourable for asset-based lenders (ABLs). Traditional banks have over-lent and are now particularly cautious, and corporate earnings are coming under pressure in more challenging economic conditions. However, ABLs are used to lending to underperforming businesses where the focus of the credit assessment is asset values. If ABLs hold their nerve and have a strong balance sheet they should be grabbing market share from the traditional lenders over the next 12 months.”
One deal suffering from the cautious credit environment was the buy-in management buy-out (BIMBO) of Mediterranean food specialist Donatantonio from the founder members. The £7 million deal, driven by private equity firm Beringea, had stalled and Litmus was invited to raise debt by accountancy firm and advisers to the vendor, Hurst Morrison Thomson.
Edwards adds: “We advised Beringea on how to raise asset-based debt, running an auction process that involved six lenders. Venture Structure Finance, a subsidiary of ABN Amro, offered the most attractive terms and was the best fit with management. They were selected to provide a revolving facility against the company’s assets as well as a cash flow piece on top. They achieved this quickly and delivered what they promised at the outset.”
He describes the deal as “a typical example of where Litmus can use its knowledge of the ABL market to deliver an effective and timely solution.”