UK-listed banking group Investec has further expanded its acquisition finance team by hiring a former executive from Lloyds Banking Group.
Paul Rablen, who started this week, will focus on deal origination and execution. Investec’s growth and acquisition division provides financing to UK lower mid-market companies across the capital structure, from asset-based and leveraged lending to mezzanine and minority equity positions. Rablen’s appointment has taken the team’s headcount to 15.
Rablen worked at Lloyds since 2004 and was a member of the Acquisition Finance Unit since 2009. Most recently he worked as an associate director in Lloyd’s originations team. In this role he was responsible for the provision of leveraged bank debt for private equity-backed transactions in the UK mid-market. He carried out deal sourcing, sponsor coverage and execution.
Rablen’s appointment comes just a month after Investec added a former Lyceum Capital executive Grant Davidson to the same team. Investec, which typically provides integrated debt structures between £5 million and £50 million, sees increased deal flow, Gary Edwards, Investec’s head of Growth & Acquisition Finance, told Private Equity International.
“We are finding lots of people that need between £10 million and £20 million that are having a hard time getting that from traditional banks. It's too big for the traditional banks to think of it as a small business, but it's not a big enough number for them to club,” he said.
Due to regulatory constraints imposed on the banks in the wake of the financial crisis, debt for buyout deals has become much harder to come by in recent years. Last year, banks provided $99.4 billion of debt in Europe, well down on the $133 billion borrowed in 2011, but more than the $75.5 billion in 2010, according to data provider Dealogic.
If a GP signs up to a three bank £50 million senior debt structure and finds an acquisition opportunity, he has to convince three banks to increase the debt. This can prevent the sponsors from carrying out their buy and build strategies
Additionally, GPs are starting to have concerns about traditional senior debt structures with [regular repayments] because that inhibits the business to a degree, Edwards added. “If a GP signs up to a three bank £50 million senior debt structure and finds an acquisition opportunity, he has to convince three banks to increase the debt. This can prevent the sponsors from carrying out their buy and build strategies.”
And while the high yield bond market is increasingly popular with GPs for refinancings, it doesn’t work for GPs operating in the lower end of the market. “The bond market is getting traction because it's an alternative to senior debt structures in a club deal with seven or eight banks. That's why at £150 million, the bond market is quite attractive. Below £50 million, the high yield bond market is tougher,” Edwards said.
“For [integrated debt packages], more than half can be secured against the balance sheet asset and they are non-amortising debt structures, so that gives the business we are funding a huge advantage. If you have a traditional senior loan the entire amount has to be repaid by year six,” he said.
“Therefore sponsors are looking for the alternatives to the big four banks and this is partly why Investec's deal flow is increasing, because the integrated debt structure we can provide is a good alternative,” he added.