Financing Market Insights
By de Visscher & Co.
Winter 2007
 

Today is a great time to consider a refinancing or recapitalization of the family business to achieve long-term objectives for business growth and shareholder liquidity. Credit is aggressively available, but this may be waning in light of possible economic softness in 2007 and beyond. The keys in this potentially changing environment are picking the right lending relationships and careful loan structuring.

When reviewing lending relationships, family businesses managers should carefully consider long-term capital needs. Needs for capital that might not be apparent today often include funding a growth strategy, a business succession, an acquisition, or an ongoing shareholder liquidity plan designed to maintain the family enterprise’s most valuable asset – “patient family capital”. Sound financial management includes planning for these future demands for capital today and establishing a financial structure with the flexibility to accommodate these goals in the face of business and family uncertainty.

The good news is that there is an increasingly sophisticated and motivated lending market available to family businesses with the mandate to “put money to work”. Accommodative monetary policy, bank mergers, new institutional investor entrants (hedge funds, second lien lenders, prime funds, etc.), and growth initiatives at mid-tier banks have created opportunities for businesses with diverse financial characteristics to attract aggressive financial packages with respect to longer term amortizations, lower rates and more relaxed financial covenants. Many institutional investors, however, have never managed a loan portfolio through an economic downturn and are, therefore, harder to predict. Keeping abreast of this dynamic market and careful loan structuring are the keys to maximizing what matters most to you and minimizing the risk of problems in the future.

Our approach at de Visscher & Co. is to maintain a broad array of lending relationships in the financing community to maintain a deep knowledge of the most flexible sources or capital, positioning us well to take advantage of opportunities as they evolve. We develop innovative financing strategies to meet our clients’ objectives that are tailored to the financial mosaic of each family business and business-owning family. Over the past seventeen years, we have assisted numerous families as they addressed financing objectives including share repurchases from family branches and a myriad of growth initiatives ranging from marketing strategies to new manufacturing facilities to corporate acquisitions.

As and example, we were engaged in September 2006 by Cleveland Group, Inc., one of the largest electrical contractors in the southeastern US, to find an aggressive and low-cost financing package to allow the Cleveland family to fund surging growth in their core business while allowing the family to responsibly exit an ancillary business that had become less profitable. We were able to source, structure and negotiate a long-term lending relationship for Cleveland that met their needs, including maximizing financial flexibility while avoiding equity dilution and personal guarantees.

“We are very pleased that we engaged de Visscher & Co. Their focused approach to lenders and their disciplined negotiating style enabled Cleveland Group, Inc. to quickly achieve our growth financing goals under extremely favorable terms and financial covenants. Moreover, we were able to stay focused on growing our business and expect a record year in 2007."

Bill Mellon, CFO, Cleveland Group, Inc.

 

Once you have established a credit relationship, maintain it with honest and open dialog regarding business performance, plans and objectives. A solid lending relationship is a valuable asset and there is a significant cost to changing lenders, particularly in time of need. Give your lender a good idea of what you expect from them and require your lender’s assurance that it is supportive. If not, it is best to move quickly, especially today. Please don’t hesitate to contact us with any questions you may have regarding available financial options. We would enjoy working with you to achieve your objectives in 2007.

Sincerely,

John Willert
jwillert@devisscher.com

Michael Blue
mblue@devisscher.com


 
de Visscher & Co.
Two Greenwich Office Park, Greenwich, CT 06831
Tel: 203-629-6500   Fax: 203-629-6547
worldhq@devisscher.com

 
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