What will it take to get investment committees to approve new investments?

Financial projections hold the key to deal activity resuming. Owners and management teams will need to present defensible projections buyers and lenders can support as they will help formulate and normalize valuation expectations and leverage capacity.

These projections obviously encompass a broad range of topics, many of which will be open to interpretation and disagreement. In addition to the details traditionally included in middle-market transaction projections, we expect buyers and lenders will require additional detail including:

1. The impact of the current shut down alongside timing and pacing of the (anticipated) ramp up
2. Proof of stabilization of revenues, margins, backlog, or other relevant operating measures
3. End-market and geographic-specific dynamics
4. Ability to finance working capital growth in the face of fully drawn revolvers and stretched payables
5. Impact on growth from ongoing social distancing measures and restrictions
6. Costs for incremental cleaning and sanitation protocols mandated by state governments
7. The impact of, and plans to manage, potential future shutdowns

As deal flow picks back up, we expect financial projections presented to buyers and lenders will face additional scrutiny. The typical growth, base, and downside cases will likely be augmented with additional analyses that reflect this new environment. However, we expect owners and management teams who can credibly present their business through this new lens will benefit from increasingly pent up demand from buyers and lenders.

Livingstone’s debt advisory team has experience positioning and marketing companies with unique or complex credit stories, soliciting financing options from a broad range of lenders and investors, and managing competitive financing processes.  Since 2007, we have completed 70 financing transactions for private-equity backed and family-owned clients and consistent deal flow ensures that we are abreast of the most recent pricing, terms and structure available in the market.