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SG Credit Profile: Technology (SaaS)

The Company: A leading online invitation and digital greeting card subscription platform.

The Financing Situation: The Company was seeking non-dilutive growth capital to acquire VidHug, an easy-to-use video platform that enables you to request, collect, and combine videos to create a personalized and meaningful montage for celebrations and holidays.

The Solution: SG was able to get comfortable with the transaction due to the Company’s committed management team, consistent financial performance, recurring revenue metrics, and overall industry trends. SG’s solution allowed the Company to complete an accretive acquisition without dilution and Punchbowl leveraged the acquired platform to launch Memento.com. The Company now offers a comprehensive technology platform for celebrations, holidays, and meaningful life memories.

To learn more, please click here to view the full press release.

For more information about this announcement, please contact Kristen Elworthy at Seven Hills Communications (punchbowl@sevenhillscommunications.com).

In May, SG Credit Partners announced their expansion to a situational credit platform from a niche lender; a strategic business strategy shift predicated on the evolving state of the commercial lending landscape. To learn more about this expansion in the asset-focused lending market, ABL Advisor sat with Charlie Perer, Co-Founder and Head of Originations at SG Credit Partners for an exclusive Q&A interview.

As Charlie Perer eloquently stated when we began our interview, the famous Bob Dylan song, “The Times They Are A-Changin” could easily be applied to the commercial finance world in 2021 coinciding with the end of a decade. We asked Charlie to expand on his view of the market.

ABL Advisor:What changes have you and your team observed in the market that acted as a catalyst for this strategic market expansion for SG Credit Partners?

Photo of Charlie Perer - Co-Founder, Head of Originations - SG Credit Partners

Charlie Perer: The changes that took place over the past decade were long in the making prior to the COVID-19 pandemic, which added its own final twist. To respond to these conditions, we recently announced our expansion from a niche lender to a comprehensive situational credit platform. In practice, we have been providing these new products for several years with much success, and we are now ready to market these capabilities to the ABL community. Since inception, we have been planning to provide more solutions to the ABL community, but the market changed so drastically in 2020 that it made clear the need for us to accelerate the expansion to a broad platform. From an industry perspective, 2020 was the culmination of a decade-long evolution; consolidation and market efficiency of the traditional ABL business model has created some spectacular voids in the market. The market changes and voids created are correlated and two-fold: first, new and existing large non-bank ABLs and term lenders moved upmarket, and second, small-ticket ABL consolidation to drive scale and efficiency created an opportunity for new entrants with a unique point of difference. This confluence of changes across the industry has created numerous market opportunities for creative lenders.  

ABL Advisor: What is SG Credit’s goal in creating this platform – what is missing in the market from your perspective?

Perer: There has never been a greater need for new, non-traditional platforms in the market more than right now. SG Credit has evolved to provide a platform of products and structures that fill all the voids created by mainstream ABLs defined as traditional working capital lenders with typical accounts receivable to inventory collateral lending capabilities. The goal of SG’s new platform is to be able to offer a proverbial menu of options to every bank and ABL so we can better partner with them. The platform includes credit solutions for structured cash flow outside of asset-based formulas, multiple forms of asset-backed collateral (including and beyond traditional working capital assets), high net worth assets and recurring revenue/technology. This platform of products combined with flexible security positions is meant to complement any bank’s lending divisions including C&I, ABL, Private Wealth and Technology. The white space we and others should target is the creation of an ecosystem that serves as a complete non-bank match to supplement an ABL and provides complete solutions to traditional non-bank ABLs. In essence, simplify the lives of borrowers and lenders alike by providing a two-lender solution instead of three or four.

ABL Advisor: Please tell us about the market SG Credit is targeting and the products you will now be offering ABLs.

Perer: Our whitespace is providing customized solutions to the primarily family-owned/non-sponsored borrowers that have situational credit needs up to $10 million. We can now provide a product for each unique situation – as opposed to most lenders trying to fit a one-product solution for all situations. The solutions are always bespoke, often in connection with another lender, but in many cases on a stand-alone basis. The structures we offer span senior, split-lien, second lien and distressed and cover a broad range including cash flow, many types of collateral, high net worth assets and recurring revenue/technology. The goal from the start has always been to be every ABL’s first call, and that goal remains, except the platform now allows for many more solutions as we extend our capabilities in asset-focused finance, including real estate and high net worth lending.  The flexibility in this new platform now includes extending credit to high-net-worth entrepreneurs whose businesses or outside assets may not qualify for traditional credit. One of our points of difference is that we can take a holistic view of an entrepreneur’s business and personal assets and treat them as one. We also have a strong capital base that is not entirely dependent on leverage, enabling us to provide a bespoke solution to both our referring lender partners and the ultimate client. 2020 re-set the playing field on many levels in the sense that most firms experienced changes whether desired or not.  

ABL Advisor: Can you please speak to the large and small-ticket ABL market changes? Why have these changes created a larger market opportunity?

Perer: The market moved the most for both the largest and smallest players in terms of facility sizes, but less so for the middle-market participants, defined as those focusing on facility sizes from $10 to $30 million. This trend is going to continue for the foreseeable future and merits discussion. Big-ticket ABL defined as facility sizes of $30 million and above have become the new hotspot for competition. Several new platforms have been announced over the past year or so of which some are traditional ABL focused, and some are more term focused.  Many firms have been forced to move up market as a product of their own successes, be it in ABL or another lending vertical, and now find it challenging to make smaller loans – the economics and time management of a sub $30 million facility are simply less compelling for many lenders. What it does speak to is the true size of this market opportunity and why the need for scale enticed many to shy away from smaller deals. It should be noted that competing at this level entails an “any given Sunday” approach as any firm can win or lose on any given day – the competition is fierce.

Now juxtapose big-ticket with small-ticket and it is a tale of two cities. While non-bank big-ticket experienced many new entrants, non-bank small-ticket experienced consolidation by BDCs and independents to create national firms with scale, pricing power and standardization. In lock step, this moved the small-ticket market by driving pricing down, creating even more incentive for firms to continue to scale to absorb the lower market pricing, a virtuous cycle and land grab for market share. The small-ticket ABLs are typically focused on providing traditional working capital lines rather than taking less liquid asset risk. The market to partner with these firms consists of single-product providers, of which SG used to be one, rather than a platform that provides either a la carte products or a comprehensive solution. The goal in creating a platform is to be able to finance multiple forms of collateral plus provide a stretch piece beyond what the assets could traditionally support. While the small-ticket ABL market has consolidated, the ancillary ‘one-product’ market has not. There are too many firms focused on single products. This is why SG Credit has been able to successfully expand to a credit platform – we solve the voids created by this small-ticket consolidation and standardization.

ABL Advisor: Looking back and now looking ahead, what do you anticipate seeing over the next ten years in the ABL market?

Perer: The past ten years were all about the traditional ABL becoming mainstream and consolidating. The next ten years should be about innovation to better support traditional products. As I stated at the beginning of this interview, Bob Dylan famously said it best, The Times They are A-Changin.

Andrew joined with the goal of bringing his upmarket sophistication and breadth of experience to the lower middle market with the goal of helping SG Credit build a broad credit platform. On Monday, May 24, SG Credit Partners announced the extension of its comprehensive credit platform exclusively serving lower middle market entrepreneurs and new website illustrating its expanded capabilities. 

What was it about this new role with SG that attracted you?

What led me to SG Credit at this stage of my career was most importantly my desire to be part of a great culture and to build something truly unique.  I got to know the people at SG as well as their new investor group and was offered the opportunity to join the senior management team.  In my role as CIO, I felt I could pair my credit experience with the already successful lending niche at SG to build a differentiated and scalable credit platform that could solve funding gaps in the lower middle market.  What I also felt was unique about SG is that it plays in the lower end of the market where the majority of lenders are focused on a singular product. SG, on the other hand, has a broad lending appetite, which is perfectly positioned to partner with traditional lenders and/or provide a full-debt solution when necessary.  I also liked that SG already had an established history of being a good partner to banks and ABL lenders, which is critical in order to be successful in the lower middle market.  A big part of my job at SG is making sure we have the necessary platform of products to be a leader in the market while maintaining a solid credit profile.

You have been successful at much larger firms. Can you compare and contrast between firms making larger loans vs. firms focused on loans under $10 million?

In addition to underwriting credit, you are truly making significantly more concentrated bets on management teams given the inherent risks in lending to small businesses.  Another difference is that there is rarely a back stop in place that may be willing to invest liquidity into a situation if things aren’t going well.  As such, I feel it is especially important to choose industries and business models wisely and attempt to stay away from binary risk given the higher margin of error.  In addition, smaller businesses are just more susceptible to exogenous shocks, whether it be issues with key vendors, key executive departures and/or industry disruptions.  We have learned the hard way to be hyper-focused on liquidity so the business is positioned to survive surprises.

The enjoyable part of the lower middle market is that it is more relationship-based with the business owners as there is a clear dearth of capital, and even at premium pricing, the majority of folks value the relationship.  These transactions are incredibly meaningful to the small business owner, which is obviously a positive dynamic.

You joined as part of an institutional investment to lead credit and build an innovative credit platform meant to fill market voids. Can you give us an overview of the platform and how it fits into the marketplace?

SG was historically focused on financing stretch pieces, which was a great business, but faced cyclical and single-product risk.  With the new investment, we have taken the opportunity to expand and diversify our debt offerings to meet what we see as opportunities to fill voids in the market.  Our current credit platform spans five key areas: 1) recurring revenue/SaaS lending; 2) cash-flow lending; 3) collateral-based lending; 4) high net worth lending; and 5) special situations (including DIP loans).  Our goal is to be the clear market leader in providing structured credit solutions to solve the funding needs of small and medium sized businesses that cannot be met through more traditional lenders.

Our platform was designed with key referral partners in mind.  The majority of traditional banks have distinct segments such as commercial banking, asset-based lending, private banking, software lending and special assets that all line up with SG’s product offering.  Our structures can be senior, junior or split-lien across these buckets, and we are capable of tailoring each solution as part of a larger facility or on a stand-alone basis. 

You’ve spent your career in lending and restructuring. Where do you see the opportunities for SG in the current challenging market environment and where do you see SG’s role in the eventual downturn? 

There is currently a tremendous amount of liquidity in the market given all of the capital that has been raised in the private debt market.  Despite the pandemic and an economy late in the cycle, this liquidity continues to create a highly competitive debt market, providing attractive refinancing alternatives for capital constrained companies.  In addition, we continue to see more traditional lenders stretching on transactions to meet aggressive budgets in an effort to maintain portfolio levels.   Despite this environment, we continue to believe that SG is well positioned. The vast majority of private debt lenders are focused on sponsor-backed or larger deals, which means there continues to be a dearth of lenders focused on special-situation type transactions in the lower end of the market. 

While we  continue to evaluate and close quality transactions, in the current competitive market the opportunity for SG is often driven by factors such as a short closing fuse or other complexities making it challenging for more traditional lenders.  We have also been increasingly active in developing a niche where we underwrite assets owned by high net worth guarantors who control businesses that may be challenging to finance on their own.  While no one can predict the timing of the eventual downturn, we believe SG will be uniquely positioned to partner and/or provide full takeouts when banks decide to pull back and lower middle market borrowers have to seek non-bank capital.  We also believe there should be a significant opportunity to purchase loans or debt portfolios and/or provide smaller DIP facilities, which is a newer offering for us and often hard to source. 

Rumor has it that you’re a big Atlanta Braves fan. Tell us about that.

I have been a big fan of the Braves since the mid 1970s, as they were the only option for a kid growing up in Central Florida at the time.  It has been a great ride, and the next few years should be a lot of fun given all of the young emerging talent.

Bio:
Andrew Hettinger is the Chief Investment Officer of SG Credit Partners, Inc (“SGCP”). He joined the SGCP team in September 2019 and is based in the Atlanta office.

Prior to SGCP, Andrew was a Senior Managing Director of Crystal Financial and was responsible for originating and structuring new investments. Andrew has over 20 years of experience working with middle-market companies as a cash flow lender, asset-based lender, and an investment banker. Prior to joining Crystal, Andrew was a Managing Director of Cerberus Capital Management and was responsible for originating and managing new debt investments. Prior to Cerberus, he was a Director with Houlihan, Lokey, Howard and Zukin and was responsible for providing private placement, mergers and acquisitions, and restructuring advisory services. Prior to Houlihan, he served as a Senior Vice President of Deutsche Bank and was responsible for originating and structuring senior and mezzanine loans to private equity groups and middle-market companies.

Andrew began his career with Bank of America and served 10 years as a commercial lender and asset-based lender in the Southeast and Northeast markets. Andrew received a B.S. in Finance from Florida State University.

Link to article here.

Santa Monica, CA (May 24, 2021) – SG Credit Partners today announced the extension of its comprehensive credit platform exclusively serving lower middle market entrepreneurs and new website illustrating its expanded capabilities. The broad platform was developed to provide tailored lending solutions ranging from $1 to $10+ million for entrepreneurs seeking a customized structure spanning both business and personal assets.  The platform delivers a complete range of credit solutions including:

  • cash flow,
  • collateral-based,
  • hybrid structures,
  • high net worth,
  • technology & recurring revenue, and
  • special situations lending

SG Credit Partners’ extensive platform provides for the credit needs of business owners seeking a lender with a holistic approach to their capital needs.  The ability to structure first-lien, split-lien, second-lien or uni-tranche transactions based on cash flow, working capital assets, equipment, real estate, intangibles, and personal assets individually or in a hybrid structure makes the platform unique in the lower middle market.

“This situational credit platform was designed to serve the needs of the lower middle market entrepreneur.  The platform was developed over the past eighteen months to fill voids in the credit market left by large credit funds unable to meet smaller needs and traditional lenders being constrained by conforming formulas,” said Andrew Hettinger, CIO of SG Credit Partners.

SG Credit is well positioned to fully serve its clients and better partner with its core referral sources. “We have national reach, a broad product suite, and a strong, permanent capital base to provide a one-stop solution for entrepreneurs and our traditional commercial finance partners unlike any other lender or fund in the market today”, said Charlie Perer, Head of Originations.

About SG Credit Partners

SG Credit Partners is a family-office backed lender providing situational capital to lower middle market businesses and entrepreneurs requiring tailored solutions and certainty to close. We’ve established a broad credit platform to solve capital needs that traditional banks, non-bank lenders, single-product lenders, and larger funds cannot due to regulatory, timing, funding, or size constraints.

Efficient in process, thoughtful in approach, and committed to building strong, lasting relationships, our success is measured over the long term by earning the trust of entrepreneurs and their advisors who come to us in their time of need. Headquartered in Southern California with offices throughout the country, since inception SG Credit Partners has provided in excess of $350 million to a variety of industries and businesses across the country.

SG Credit Profile: Technology (SaaS)

The Company: Provider of B2B and B2C telephony-related security services.

The Financing Situation: The Company was seeking non-dilutive growth capital to execute on sales & marketing initiatives and have the ability to close quickly on accretive acquisitions.

The Solution: SG was able to get comfortable with the transaction due to the Company’s consistent growth in MRR, strong retention metrics, profitability, and experienced management team. Within 3 weeks from signed term sheet, SG provided a $2MM growth capital facility with $1.5MM funded and an additional $500K tranche available based on continued growth.

The Company: Privately held independent registered investment advisor (RIA) that provides wealth, asset, and business management services to high-net-worth individuals and families. The Company has a variety of unique services not typical of traditional RIAs including access to alternative investments.
Assets Under Management: $300MM+
 
The Financing Situation: The Company was experiencing rapid growth in AUM and planned to go to market to find a strategic partner that could provide the financial and operational support needed to continue to scale the business. Ahead of that transaction, Company management wanted to secure a non-dilutive loan to help finance operational burn and extend runway. The capital would allow the Company to continue to add AUM and give it time to improve enterprise value ahead of a transaction.
 
The Solution: SG was able to get comfortable with the transaction due to the Company’s sticky recurring revenue business model, projected growth in run-rate revenue supported by a strong pipeline, the enterprise value of the Company, and its clear path to profitability. SG was able to close the transaction within 10 days of a signed term sheet.

Product Type: High Net Worth Guarantor

The Company:
A privately-held family investment vehicle.

The Financing Situation:
A high net-worth couple (“the Guarantors”), via the family investment vehicle, were in the later stages of a ground-up construction on a new home. The total cost had eclipsed the initial budget and the additional capital required to complete construction was beyond the loan-to-value comfort level for traditional lenders.

The Solution:
SG was able to underwrite this transaction by taking a holistic approach toward the Guarantors’ personal financial profile, and not restricting leverage solely to the subject property. SG worked quickly to provide a $1.0MM loan structured around the Guarantors’ personal assets and diversified income streams.

This transaction highlights SG’s ability to structure and underwrite guarantor-based loans. While many of you know us as a cash flow-based lender, we now provide special situation (balance sheet) loans requiring creativity, flexibility, and speed to close.

The Company:

A single-asset real estate holding company owned by a prominent carwash company in the Midwest. The carwash company is just one subsidiary of a broader investment company with interests in a multitude of industries.

The Financing Situation:

The Company had an executed purchase agreement on a property that it intended to acquire and construct an expansionary carwash location under its existing brand. The Company needed 100% upfront debt financing to close on the acquisition quickly and working capital for the entitlement process before seeking construction financing.

The Solution:

SG underwrote the real estate as well as the personal guarantees of the two founders, who maintained significant outside personal liquidity as well as equity in various real estate and business holdings. The strong personal balance sheets of the guarantors allowed SG to be aggressive with its advance rate on the real estate collateral (>100% LTV when including additional working capital provided) and SG’s capital was non-dilutive.

This transaction underscores SG’s ability and willingness to structure and underwrite collateral based / guarantor-based loans. While many of you know us as a cash flow-based lender, we now provide special situation (balance sheet) loans requiring creativity, flexibility, and speed to close. We also have a strong interest in providing customized solutions for liquidity constrained high net worth entrepreneurs.

The Company: Enterprise SaaS platform that provides a complete end-to-end suite of CRM tools to clean, protect and enhance company and contact information, leading to improved organizational efficiency, reliable business intelligence, and maximized ROI on CRM and marketing automation investments. Recurring Revenue: $8+ million.

The Financing Situation: The private equity backed Company was looking to buy out a significant shareholder and net additional working capital to make strategic hires and help fund growth initiatives. 

The Solution: SG Credit provided the Company with a non-dilutive $2.5 million term loan with structured amortization early in the term to free up cash flows and liquidity to fund growth initiatives. This structure allowed the Company to seamlessly buyout the existing shareholder without complicating existing shareholder dynamics. SG Credit was able to close the deal within 3 weeks after quickly getting comfortable with the Company’s recurring revenue, client base quality, and continued shareholder support. 

This transaction demonstrates SG’s ability to underwrite SaaS / recurring revenue loans. While many of you know us as a cash flow based lender, we now provide non-dilutive SaaS / recurring revenue loans requiring creativity, flexibility, and speed to close.