Minimizing Risks in Direct Lending
A leading asset management firm provides customized financing solutions to middle market companies. As a senior vice president on the asset management firm’s lending team said, “We have limited underwriting bandwidth, and Guidepoint ’s experts flatten out our learning curve.” A sponsor presented a packet of information to the asset management firm about a business services company looking to refinance bank loans. After a week of preliminary research, the firm signed the term sheet and began in-depth due diligence. With its legacy business in decline, the business services company was pursuing new opportunities enabled by new technology and a fresh business idea. The asset management firm’s lending teams, experts in lending products and structures, but not in the ins and outs of particular industries, needed to understand market dynamics and assess how quickly the new business could ramp up. The team contacted Guidepoint. As the senior vice president said, the sponsor’s job “is to pitch us. We know we are being sold to. So we need impartial sources.”
Within hours, Guidepoint screened and presented a large number of Advisors for the firm’s consideration. The team chose to consult with an industry veteran with more than 15 years of experience in the business services industry. This Advisor armed the deal team with the right questions to ask about the competition, the management team, and the state of the legacy business. Further probing revealed that the legacy business was unraveling quickly. Even more troubling, the competition was so far ahead that it would be difficult for the target ’s new technology and business idea to gain traction.
The phone consultations helped the lender precisely pinpoint the risks. As a result, the firm did not extend credit to the business services company. In this, and other cases, the senior vice president at the lender said, “Guidepoint ’s service helps us put our money to work effectively by helping us quickly understand where we should—and shouldn’t—spend our time.”