Do you guys and gals want the perspectives of a junior capital fund?

by a lender from Carnegie Mellon University - Tepper School of Business

3 years ago

I provide both senior/mezz debt and equity to individuals acquirring companies. My firm has a pool of committed capital and is actively deploying it into new deals. I would love to see deal flow, but more importantly:

what kind of questions would you all want to ask an institutional funding source like myself? nothing to big or too small, i will get to them all.

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lender from Carnegie Mellon University - Tepper School of Business

Hi Joseph - great question. governance is always a hot button. we have done ESOP deals before and personally I love it conceptually, but it does make it tough. what it comes down to for me is what kind of investment am i making? if i am only writing a mezz debt check, i really have no reason to throw a wrench into governance on the equity side, other than confirmatory diligence to make sure things would run smoothly. if i invest equity alongside my debt (what we do the majority of the time), we usually look for rights that are commensurate with the dollars we bring to the table. if i invest 75% of the total equity (an extreme example because we rarely go that deep), I would absolutely expect we control the company. there is a lot of gray area that comes up with junior capital providers when say, for a $20MM deal, I bring $10MM of debt and $3MM of equity. Maybe we are a smaller piece of the overall equity stack, but we would have the most capital at risk in the deal by far. those are the situations where we typically get some solid "consents', where certain things can't get done without our express approval (acquisitions, hire/fire ceo, big stuff). would be happy to check out some deals with you if they are in my criteria. please check out our website and feel free to call/email with any details if you think there is a fit.

3 years ago | like reply | 0 likes

searcher from Drexel University

Hey Jack. We operate with a fairly unique legal structure (a worker-owned holding company fairly similar to an ESOP Hold Co model). We have done a few deals and are now expanding through a sponsored search program (IE we have searchers in a few geo's looking for companies that fit a shared thesis.)

Main question would be around your threshold for governance rights. The cooperative has a mandate to hold a majority position in any acquisition (IE maintaining real worker-ownership). What would be your main questions when thinking about diligence before deploying capital into one of our acquisition targets? Would love to connect for a short convo if you are open to it! Joseph @ Obran.org

3 years ago | like reply | 1 like

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