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Mid-market firms finance own debt

As credit processes from UK banks take longer to complete, firms like Dunedin and Gresham are taking debt finance into their own hands.

Ongoing constraints on bank lending has led some UK mid-market firms to begin underwriting their own debt facilities in order to get deals done.  

Last week’s £20.75 million (€24.2 million; $34.4 million) acquisition of talent management agency James Grant Group by mid-market firm Gresham Private Equity – which PEO in May reported was in the works – marked Gresham’s first use of its new approved debt underwriting product. Essentially the product allows Gresham to underwrite 100 percent of the debt in its deals using cash drawn from its latest fund.

We were able to just turn up with a cheque.

Iain Wolstenholme

The fact that the acquirer underwrote the entire deal “significantly reduced” the transaction risk for the vendor Formation Group, Gresham said in a statement. Bank credit approval processes have become increasingly protracted, according to Manchester-based Gresham partner Iain Wolstenholme. “[By underwriting the debt ourselves,] we were able to just turn up with a cheque,” he said.

Following completion of the deal, which is conditional on shareholder approval, Gresham will have the option of refinancing, although the decision to do so has not yet been made.  

Dunedin, a UK mid-market firm focused on companies between £10 million and £75 million in enterprise value, has been underwriting debt in its buyouts since 2007, the firm said in a statement this week. The firm has now “bridged” the debt on its four latest buyouts, and has subsequently refinanced three of these.

“The debt bridging model brings certainty to the vendor and the management team that the transaction will happen,” said Dunedin chief executive Ross Marshall, “It also provides flexibility to the new buyout company because more time can be spent arranging an appropriate debt structure outside of the transaction deadline.”

Last week Alistair Darling, the UK Chancellor, met executives from the British banks to encourage them to increase their lending activity to small- and medium-sized businesses.