Operations focus key to sponsorless deals

Driving improvements at the company level is no longer the reserve of private equity sponsors, say European direct lenders who see operational expertise as an increasingly important tool.

Speaking during a panel discussion on the first day of PDI Germany 2017, Michael Guy, chief investment officer of Crestline, Europe, complained that 'non-sponsor' was an inadequate phrase to describe the work of a direct lender.

“By saying non-sponsor you are attributing importance to the sponsor that is out of all proportion,” he said. “Rather than being a service provider to some wealthy chaps in Mayfair, I would like to see us as a capital solutions provider.”

He stressed that most small- to medium-sized companies in Europe were not buyout opportunities but have specific working capital or refinancing requirements that cannot be solved through traditional private equity. Nevertheless, LPs still equate operational capability with sponsored-deals.

“I hear potential LPs say to me 'we like it when sponsors are involved because when things go wrong, they can put more money in and can help fix the problem', but the sponsors don't do that for [our LPs'] benefit,” said Guy. “We have 125 people and guys that can roll their sleeves up, make changes and put new money in. Sponsors don't have a monopoly on being able to fix problems.”

His comments were echoed by Thomas Spring, a partner with Syntaxis in Vienna, who said his company runs a process that in many ways is no different from what an equity investor does in terms of the due diligence they do and the boardroom involvement they have.

“As a capital solutions provider, we are, in a certain sense, sponsors ourselves,” he said. “We leave things in the hands of the management but we set a framework within which they should operate and if they don't, we take a step and change things, and kick them in the right direction.”