Finding Love in the Middle Market LBO World

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It is all too seldom that one is present to see true love blossom – especially in the middle market finance world. Fondly, though, I can report I had the special privilege of seeing such a glorious thing at recent private capital industry gathering.

I was picking my way through a wilted salad and tired conversation with six other middle market finance folks when we were set upon by an agitated young banker who’d sprung in from an adjacent networking event.

The young man was visibly flushed and excited (heck, he reminded me of a new puppy on a slippery tile floor). As he regaled us with his dreamy day, even our tired eyes could plainly see it — the banker had fallen in love. The young fellow, we’ll call him Señor Lender, gushed breathlessly about his new objet d’amour – a private equity firm with a deal.

There is no love lost, sir. – Don Quixote
 
His words tumbled out one after the other: this was the real thing, not like all of those other flighty prospects, or breezy business brokers. This time Señor Lender felt his needs were being met. The PE pro listened to him, gazed only at him when they talked, and said he promised that he really wanted to do a deal with Señor Lender  – because, wait for it, he respected his thinking. Frankly, I will admit I was a bit nostalgic as (with the blessed exception of my lovely wife) I could not recall having a crush this bad since Mary Cook in Junior High. Señor was smitten.
 
“Golly, what do you think – isn’t the he just the best?” said Señor of his new-found amigo. 
 
“Humph,” snorted a salty old mezzanine lender over his sinewy steak, “before we buy flowers, what type of deal are you actually doing with him.”
 
“Gosh, does it matter? I’ve seen him and his firm on, like, heaps of tombstones over the years. He’s so smart, witty, and popular. I just gotta believe he sees something special in me.” By this time Señor Lender was so excited, I feared he might piddle on himself.
 
Without a word, Salty Mezz ever-so gently poured a quart of cold water upon Señor Lender’s head (from one of those infernal plastic pitchers with as much condensation outside of them as water inside, so you can’t help but get water all over your notes at a conference – sorry, I digress). 
 
“Look,” said Salty, “it does matter. You are best advised to remove the gauze from your eyes and stare hard at the specific experience sponsor has in that deal’s sector. What is more, I would invest more time than just splitting a root-beer float in getting into the investment thesis for the specific deal. Is the thesis clear? Does it make sense given the specific industry dynamics? Does dreamboat have the bench strength to pull off this deal – and to get it back on track if there is a speed bump?”
 
“B-b-but, he said we think alike,” pouted Señor, “…that this could be the start of a relationship.”
 
“Did he now,” smiled Salty. “And just how aligned are you, really? You think you know what you want – but do you really understand what the sponsor needs to make this a good investment for him? Are you really sure you know what you may need to do to make this work? With all your heart, you might want to settle down and pay off debt with all the free cash flow – but he might want to play the field a little more and see if he can make the party bigger. So do you really understand what this relationship might mean?”
Salty continued, “Although you picture a model future with leverage worked to near zero, would you be willing to let him (gasp) take a dividend a year from now? – maybe bringing in a shiny new bank?” I could not help but flash back to undergrad when too many of those four-year couples crashed mercilessly on the shoals of graduation and divergent goals in life – yep, I actually felt just a bit sorry for Señor.
 
“Gee,” said Señor, “maybe we really should slow things down and talk this through a bit more.” And to his credit, Señor poured one more pitcher of water on his own head. 
 
I have seen Señor at other gatherings – he’s moved on and now has become quite adept at managing relationships with several private capital providers. 
 
But as they say, you never forget your first crush. Hope you are well, Mary Cook. 
 
More to come.

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