Young PE Lender gains a Firm foothold in the Industry

Name a middle-market private equity firm and Madison Capital Funding has worked with it. The firm has only been in business since 2001 but has managed to make significant inroads into the private equity community. Perhaps it’s because the founders of Madison Capital have worked in or around the private equity arena for quite some time, or because the firm has an attractive financing model. Whatever the case, this firm is one of the more highly regarded lenders in the private equity realm. Since its founding, Madison Capital has invested more than $5.8 billion in about 350 deals. While the firm funds transactions the same way any lender would, it doesn’t fundraise capital from LPs. Chicago-based Madison Capital is a subsidiary of New York Life Investment Management (NYLIM), which is an asset manager with more than $230 billion under management. “They are our sole source of capital. It’s a perfect situation. When we need money, we go to New York Life and get it,” says Christopher Williams, a Managing Partner at the firm. “Everything is run out of our Chicago office by the five partners. We make all the decisions. They don’t get involved in the deals we fund, and we don’t have to show them anything before we do a deal.” NYLIM and Madison Capital meet twice a year, and the parent doesn’t interfere with the dealmaking process. As one sponsor group that has worked with Madison Capital puts it: “Their decision-making is transparent and compact. There are not a lot of committees and meetings. If they like the deal, they can get it done. They must have a pretty good feel for what NYLIM wants because it’s all pretty seamless from the sponsor’s end.” Having NYLIM as its investor certainly makes life easier, as there is no pressure of fundraising. And even though Madison Capital is doing a booming mid-market banking business, it’s just a tiny sliver of the business for which NYLIM is responsible. “We basically make up just 1% of their business, but a nice percentage of their earnings,” says Williams. Madison Capital began sowing the seeds for a relationship with NYLIM in 1999. Originally, there were six founders of Madison Capital. All had been bankers at Continental Bank in Chicago, which Bank of American bought in 1999. After the acquisition, the partners went their separate ways. Some went to GE Merchant Banking, others joined Antares Capital, and a couple stayed at Bank of America. However, shortly thereafter, the partners at that point – Trevor Clark, Tom Klimmeck, Craig Lacey, Terri Capsay (who has since retired), Hugh Wade, and Chris Will – decided that they wanted to open their own lending firm. The group contacted Gary Wendlandt, who was President of NYLIM at time but had previously founded Antares, in 1999 but it wasn’t until early 2001 that the firm was actually chartered. “We wrote a business plan, gave it to Gary, and he wanted to sit down with us. It was great that they wanted to do this,” says Williams. “We did not slap this together. NYLIM really wanted to build a strong business, so we took our time. Over the course of the next year we refined the plan, found office space, and did everything else to get this going.” Propelled by phenomenal market conditions and a lack of fundraising pressures, Madison Capital has been able to put plenty of debt to work. The firm funded 50 new platforms last year. The firm seeks to hold a position of $15 million to $30 million in a given transaction, with a maximum of $45 million. Additionally, it targets deals with companies that have EBITDA of no less than $5 million. “Our primary product is cash flow senior debt, but we will underwrite mezzanine debt or can do the whole structure, then we typically sell off the sub debt,” notes Williams. Moreover, Madison Capital is a generalist investor. Forty-nine percent of its portfolio is made up of manufacturing companies, while 44% is composed of service companies. There are just a few areas in which the firm will not invest, such as tobacco, real estate, and high technology. Madison Capital provided the senior credit facility for Brockway Moran & Partners’ acquisition of International Bedding in 2006. “They are professionals. They have very senior people doing deals. They know companies and understand business,” says Peter Brockway, a Managing Partner at Brockway Moran. “At some firms the senior people are way in the background. That’s not the case here.” Other than Brockway Moran, the firm has worked with a who’s who list of private equity firms in the last year. The firm funded Gryphon Investors’ acquisition of Staffing Now, Morgenthaler Partners’ Mark Andy buy, and Norwest Equity Partners’ acquisition of Jacobson Cos., to name a few. “We will see more than 700 deal opportunities this year, which is just incredible. But it gives us a chance to go through them and figure out where to get aggressive. You really have to pick the better deals today,” Williams says His biggest complaint about today’s market conditions is the soaring number of new entrants: “They’re throwing out high multiples to put money to work. It’s crazy, and every week we hear of another firm throwing its hat into the ring.” (c) 2007 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com