Purchase prices and multiples are high and the pressure is on for buyers to move quickly to close deals. That gives some middle-market lenders - those that can hold more on their balance sheets - an advantage over others. "Buyers want to close quickly, and that is a differentiator for them in a sale process," says David Brackett, CEO of middle-market lender GE Antares.
"We have had great success putting together programs with our strategic investors that allow us to speak to about $150 million in hold size," Brackett says. Canada Pension Plan Investment Board agreed to buy GE Antares and the rest of GE Capital's Sponsor Finance unit in June, after as General Electric (NYSE: GE) said it would divest GE Capital in April.
An alternative to using a lender with a large hold size is cobbling together a syndicate, which can potentially add time to the deal process. In the middle market, a hold size of $50 million to $75 million is considered large.
"If a sponsor can club up two or three guys and get a $150 million deal done, that's a lot better than having a bunch of guys holding $20 million," says Jeff Day at Chicago lender Madison Capital Funding LLC.
Having fewer lenders on a deal makes things simpler, because fewer parties will need to get up to speed on the deal and get credit approval, and it also makes modifications less likely, sources say.
Having just one lender and moving through a sale process fast could also give middle-market buyers a slight price discount, depending on the deal.
"Purchase prices are high, and as opposed to having to pay absolute top dollar, some buyers are finding they are able to buy at a slight discount based upon speed and certainty," says Brackett.
"A long, frothy process involving many different bidders provides an opportunity for the seller to pit one against the other for a long period of time, versus a buyer just locking up the deal and saying, 'I'll take this off your hands, you don't have to worry about financing and I can close in 30 days.'"
For more on GE Capital, see our Q&A with Brackett as well as Mergers & Acquisitions' M&A Mid-Market Lender of the Year for 2014.