Jenna Beahm

SG Credit Profile: Software & Technology

 The Company: Rallio is a social media management SaaS platform that provides brand control and reputation management solutions to franchise businesses.  

The Financing Situation: Rallio was seeking non-dilutive growth capital for opportunistic M&A and to execute on a strong new customer pipeline.

The Solution: SG was supportive of the transaction given the Company’s ARR growth, strong retention, and scalability of the platform. SG’s efficient underwriting process developed via executing over 100 software and technology transactions enabled a closing timeframe of less than three (3) weeks. This streamlined approach allowed the Company to focus on day-to-day management and growth of the business rather than being sidetracked by heavy due diligence.

 Please visit Rallio’s website for additional information: www.rallio.com

Stonegate Capital is excited to announce it has closed on a senior debt investment in Clio Snacks. Founded in 2015 by Sergey Konchakovskiy, Clio offers a line of handheld Greek Yogurt Bars and Granola & Yogurt Parfait Bars that combine the benefits of whole milk Greek yogurt – which are high in protein and probiotics – with an irresistible cheesecake-like texture and decadent dark chocolate coating. Clio recently launched three new innovative additions to its refrigerated, handheld bar portfolio: Chocolate Greek Yogurt Bars, Vanilla Less Sugar Yogurt Bars and Vanilla Almond Granola & Yogurt Parfait Bars.

“Clio is an innovative fresh snacking brand and we are ecstatic about our partnership with the Company. We pride ourselves on aligning with the high-growth, entrepreneurial backed market, and this thesis aligns perfectly with Clio’s exciting market disruption in the healthier for you snacking space” said Jordan Hoppe, Director at Stonegate Capital. “We are certainly looking forward to being a collaborative partner in Clio’s already impressive growth story.”

Stonegate Capital, a division of SG Credit Partners, is a private credit investment firm with a unique approach to providing financing solutions to established lower middle market businesses with a heightened focus on emerging brands within the food and beverage, consumer products, and e-commerce spaces.  Recognizing that each company has unique and specific needs, Stonegate focuses on aligning senior credit facilities to the growth and liquidity requirements of a business.

Please visit the Company’s website for additional information:

www.cliosnacks.com

For additional details regarding Stonegate Capital’s investments, please contact us directly at:

www.sghcap.com

Jordan Hoppe: 312-971-8136 | jhoppe@sghcap.com

Evan Waggoner:  336-512-6388 | ewaggoner@sghcap.com

Dan McCallum: 312-971-9445 | dmccallum@sghcap.com

Ryan Woody: 312-971-1551 | rwoody@sghcap.com

Andrea Hedrick: 773-562-8477 | ahedrick@sghcap.com

SG Credit Profile: Technology (SaaS)

The Company: A bootstrapped communications SaaS platform catering to the insurance industry.

The Financing Situation: An entrepreneur with extensive insurance industry experience had an executed LOI to acquire the Company. The sellers wanted a quick exit process so provided a four (4) week timeframe to consummate the transaction. The acquisition was structured with a combination of equity and SG debt.

The Solution: SG was supportive of the transaction given the Company’s diverse ARR base, mission critical product, profitability, and the contemporaneous equity contribution. SG structured a $4.5MM senior secured debt facility providing interest-only flexibility to support the Company’s planned ARR growth initiatives. SG was able to move quickly to meet the tight closing timeframe and the acquisition was completed as planned.

In this installment of our series of executive interviews, Charlie Perer sits with Tim Knight (pictured) to hear his perspective on executive development, advice for lenders, the growth in the non-bank market, what every executive should be thinking about, the importance of diversity and lessons learned, among other things.

Charlie Perer: Thank you for your time, Tim. To begin, can you please talk briefly about your background?  

Tim Knight:  Thank you, Charlie. My background includes sales and sales management with a company called the Southwestern Company right out of college. Those early years were incredibly entrepreneurial as I was on the road almost 80 percent of the year.  After starting my family, I quickly began to evaluate my life goals and how I needed to be home more often in order to stay married! I kind of happened into search joining ThinkingAhead in 1997 as part of the firm’s expansion and my desire to help great companies and professionals succeed. I was the second person hired in their banking search practice.

Fast forward to today, the firm has grown to over 50 employees and I lead the team that heads up four of the firm’s practice areas including commercial finance/banking. I still spend half of my time working with clients and addressing their talent acquisition needs while leading the firm.

Perer:  What do most of us take for granted about our careers or not invest personal time into that we should?

Knight: Not taking the time to invest in personal coaching of some kind along the way. We spend so much time “working in” our businesses, growing our careers, but often neglect time to “work on” ourselves. I include coaching or additional training along the way as part of my practice as I do believe there is a real correlation in developing personal skills with long-term career success and happiness.

Along with coaching there is a strong need to be mentored by senior peers as well as mentoring younger people coming up in our respective companies. The most satisfied people I know are those that are plugged into mentor programs, especially those where they are helping younger people learn and grow. If a person can look back on a career and name five people they have positively impacted that is a personal achievement.

Perer:  Given that hiring plans/budgets are an indicator of corporate planning, what insights do you have into company’s 2022 plans at this point?   Are you getting the sense that firms are in growth mode going into 2022?

Knight: Yes, most everyone seems to be looking for talent while balancing the need to attract younger workers. That seems to be the real push right now, hiring for the future in our industry while keeping an eye on diversity.

That said, most companies I talk with weekly are struggling to find talent in the current market, as the labor shortage is real everywhere. Unemployment for college educated workers is at historic lows, coupled with demand and lower participation rates and there are not enough professionals to adequately staff the market.

As far as this coming year and likely into next year, most are hoping to grow and gearing up for a solid 2022.  If you look at the 122 placements our banking practice filled in 2021, over 70% were in either originations or deal execution roles. We are, of course, a very small snapshot of the market, but it gives the readers an idea of what is happening.

Perer:  In your experience, what explains why BDOs who are attractive recruiting candidates want to leave one good firm to go to another good firm?  

Knight: Good business development officers who have managed their careers well are very difficult to recruit away. I often share with clients there is no “science” to recruiting in this position. We have all seen successful business development officers leave one firm as a “world beater” make a move and struggle in the next. The converse is also true as sometimes a change of scenery can also lead to one’s success

In my opinion, this is one of the most difficult roles to recruit for in the market and companies need to be patient when evaluating and onboarding talent. Everyone wants assets right away, but high turnover in a market does more damage to a firm’s brand than allowing more time for the business development officer to succeed.

During the last ten years, there has been a great deal of movement in that position and often it can backfire if not done well. Savvy business development officers will stay put unless and until their story changes internally. Of course, a change in control is an easy one. Other key reasons that seem to top the list in this group are changes in leadership, credit appetite and compensation plans.

Perer:  Is there an industry dynamic where performing BDOs are worth more financially to new employers than they are to their own existing employer?

Knight: Newer platforms are typically forced to pay above market. I am seeing newer names in the market, some start-ups, others that are adding lines of business as a means of asset diversification. In those instances, there is a willingness to pay more in order to entice those candidates into newer platforms. Firms that are new, with no track, entering an overcrowded market must be willing to offer above market compensation and guarantees to get performing BDOs to take the risk of moving.

Perer:  The war for talent between banks and non-banks has been skewed towards non-banks the last few years.  Do you see this trend continuing as non-banks continue to raise large pools of capital?

Knight: Absolutely. When I first started recruiting 26 years ago, there were two primary constituents: bank asset-based lenders and commercial finance companies. Today there are more private credit lenders, finance companies, insurance companies, pension funds, BDCs and sponsors that are in the market looking for the same deals. It’s been amazing to watch this shift in the market. With so much liquidity in the alternative capital sources, I see this trend only intensifying in the coming years.

Perer:  What does it take to succeed on the non-bank side as the transition for some is not always easy?

Knight: Without question a strong credit background in true commercial finance or at one time having worked in what I call the traditional ABL collateral-focused product with a bank. Before the great recession, many banks had standalone groups that operated fairly independent. Today many banks have turned ABL into a product and while taking some risk, they are less collateral driven than in the past.

When searching today for the non-bank market, most all clients want true credit, special situations and or collateral lending backgrounds. In other words, the risk-return profile requires a slightly different background. The non-bank market by definition is looking closely at collateral, taking risk with yields reflecting that risk.

Perer:  What are you advising your clients right now, given where the market is?

Knight: Build your bench by hiring younger talent…today. The impending crisis looming is around the corner with the baby boomers retiring en masse. Statistics show ten thousand boomers are eligible to retire very day. Let that sink in…. those are real numbers and the need for that level of experience doesn’t evaporate, but the talent pool just isn’t there in the next generation.

It takes longer to on board and train newer people, but the pain will be far greater if you wait and lose five people in a span of 18 months due to retirement in a labor market that is showing no signs of cooling off.

Perer:  It’s no secret that ABL has a talent issue.  What do some of the bigger lending platforms (bank and non-bank) need to do to better market to Millennials?

Knight: Great question! I believe younger people want and need to see how asset-based lending is making the world a better place by whom and how they serve. Meaning, be able to talk about success stories that make an impact on the greater good through saving jobs, financing companies that create products or services that are mission oriented or simply create cool things that meet the market demands. Like it or not, Millennials have a need to see they are making an impact and the stories are part of illustrating that impact.

Also having everyone on the same page talking about how their companies value and appreciate employees in a tangible way via actions. This resonates with all demographics, but especially with those in the younger cohort. For example, one of my newer clients shared with me that they extend three days a year of PTO to do volunteer work and will set aside $1000-2500 based on level to give to each employee’s cause. Getting all involved in the hiring process to be able to articulate exactly what the company does to show that part is huge for Millennials.

Perer:  Can you please talk about diversity employee initiatives that some of your lending clients are implementing?

Knight:  This is extremely top of mind in the current climate as clients know that a diverse workforce is very good for business as their own portfolio companies’ clients are becoming more diverse just as the demographics of the work force are changing. Just talking about the initiatives and the importance of diversity and how it’s great for business is a start. We are hearing that large and small companies are putting their employees through continuing education classes on the matter. New employee hiring tends to be where the greatest training or awareness is being created through helping leaders be aware of unconscious bias and how fast processes can impact hiring decisions negatively.

Perer: You mentioned unconscious bias, tell me more about how that can impact in hiring employees.

Knight: Well, biases are naturaldue to our beliefs that are built over time, what we read, how we are raised and so on. One can believe falsely that good leaders are all tall in stature and we all know height has nothing to do with ability to lead an organization. Thanks goodness! Similarly, if my beliefs are set to only find people to “fit the culture” I may only choose to interview those in my age cohort, look like me and/or have similar experiences. If I do so, I will overlook great diverse talent due to my biases.

Another common mistake is rushing to make hiring decisions without fully vetting the entire pool. This rush to hire naturally leads to our default setting which is who is the best cultural fit based on my current team. In short, when we rush, our unconscious biases take over.

Perer: Lastly, tell us something you are worried about that the rest of the market has yet to figure out. 

Knight: Well, Charlie, I am certainly not that smart. I can tell you that what worries me in a macro sense is the lack of younger talent coming into the industry. There is a real disconnect with most companies, not all, if we can just kick the can down the road through only recruiting experienced talent we can address the pressing problem later. It is a balancing act…you need experienced help today and no time to train, but that approach can only last so long.

Our industry has made huge strides in the last ten years and that is encouraging, but more attention is needed. There will be businesses we all know of today that will be sold in the next five to ten years out of necessity due to the lack of talent to adequately staff. We have to be about telling the story on college campuses and recruiting from related fields to see the industry thrive in the years ahead.

Knight is the vice president and senior managing partner with ThinkingAhead where he is responsible for operations, training and recruiting for the firm. He also leads the partner group that heads up the firm’s Commercial Banking and Commercial Finance, Legal, Life Sciences and Security/Physical infrastructure search practices. Knight is also a member of SFNet’s Diversity, Equity and Inclusiveness (DEI) Committee.

Knight is in his 26th year in executive search. Prior to joining ThinkingAhead, he was with Southwestern Advantage as a District Sales Manager recruiting and training salespeople. Including his college summers, Knight has been with Southwestern Family of Companies for 35 years. Since joining the firm in 1997, he has personally filled over 450 engagements for clients and his teams have filled over 2300 engagements. Knight is the all-team leader in personal production for ThinkingAhead.

He maintains an active portfolio of client companies in the sponsor finance, commercial finance, turnaround/restructuring and legal market.

Link to article here

Black Hawk Down is an epic war movie by the famous director Ridley Scott. The movie is a complex story involving significant amount of U.S. troops being sent to a war-torn nation to keep the peace. Just as soon as the U.S. military withdraws its presence, war breaks out again, this time with only a small amount of U.S. forces left behind.

Now replace this movie with the reality of banks’ special assets groups (SAG) recruiting thousands of line managers to act as SAG reservists during 18 months of the COVID-19 pandemic. These reservists were recruited to deal with a never-before-seen economic crunch that never happened. Now these thousands of folks, some of whom were recruited or brought out of retirement, can’t or won’t be called up again. The recruiting happened quickly and so did the disbandment that put these SAG groups back to where they started: understaffed at the top of an economic cycle. This means there is a very high likelihood that there is going to be meaningful economic stress coming to banks and SAG groups will be wholly understaffed. Banks sounded the alarm for COVID-19 and are not likely to sound the alarm again over stress in the economy.

The major banks dodged a bullet thanks to the government stimulus programs, but it’s unlikely they will dodge the economic insurgency that is starting to take shape. With rates as low as they are now, a 200-to-300 basis point interest rate increase over the next couple years could double interest expense for most lower middle-market borrowers. There isn’t enough cushion in most leveraged transactions to absorb that without a wave of defaults (except of course in no covenant deals, but those aren’t that prevalent in the lower middle market). This will be further compounded with EBITDA reductions when companies can’t/are slow to pass on cost increases. These EBITDA reductions combined with higher capital costs will be enough to cause a tremendous amount of stress to many borrowers as well as to the banks that reversed large reserves and reduced staff back to pre-pandemic levels. The reasons causing stress to banks might be different this time from prior anticipated events, but they are nonetheless real.

The saying goes if there is a 1% chance that something will happen, it eventually will. The potential causes of economic stress are too many at this point: interest rate increases, supply chain disruption, inflation, labor shortages, COVID variants and geopolitical risk, just to name a few. We are beyond the low percentage outcomes of economic stress and the new pools of non-bank capital are betting on this.  Issues related to the supply chain, inflation and interest rates alone present clear and present dangers that are already leading to more criticized credits. Work-out groups, for the first time in a long time, are seeing real signs of stress and don’t have the resources to handle larger than expected volume. Why would they? The government pumped massive liquidity into the system so banks fell for the false alarm once. Banks are not going to be able to mobilize a large-scale work-out force again, so the scaled-down SAG team are going to have to manage a wave of troubled credits on their own. This is going to happen.

This author has written extensively about this, but at some point, banks are simply not going to be prepared for what is on the horizon, partially because the extent of it is clearly unknown and partially because they literally disbanded the people they recruited for what turned out to be a massive false alarm. Each of the previous situations has been different and the next alarm will not be false for reasons that are clearly foreseeable and understandable. Furthermore, liquidity is starting to run out at smaller businesses and work-out groups are back to being understaffed. At the same time, banks are still profit machines focused on expense ratios and not incentivized to re-staff a non-revenue generating department. Banks do see the economic warning signs but are simply not likely to react until it is too late.

So, to summarize, the COVID-19 pandemic hit and the non-banks were ready to be pirates, only to be thwarted by the government creating an economic windfall for the banks. The banks, ironically, were prepared to be raided by distressed and asset-based lenders rather than for an economic windfall. However, the economic windfall was so good that it is going to cause over-inflating of the economy and cause suffering to lower-income populations. Separate from this, the pandemics effects are still rippling through the economy. There are too many disparate economic activities happening that portend trouble and too many variables that can’t be fixed. All the while, the banks called up the reservists and then promptly sent them home. So, just like the movie, there is another battle coming and the small teams of experienced work-out folks are the ones left behind for what will be hand-to-hand combat.

This next battle will be multi-faceted, as the amount of non-bank capital that has been raised and waiting for this event is truly at an all-time high. Small teams of work-out professionals are going to be facing off against well-staffed and well-capitalized non-bank distressed and ABL groups who have been waiting years to book assets. The ideal scenario for the non-banks is for the banks to be caught off guard with understaffed groups. This confluence of events might just play out if any one of the aforementioned economic events take hold.

Legends are borne out of every war movie and economic cycle. Work-out, ABL, turnaround and distressed legends were created in the 1980s and as recently as 2008. Fortune favors the brave and there will be fortunes made soon enough.

Link to full article here