With the firm’s roots extending back over 25 years, Saratoga’s investment professionals have spent their careers in the middle market.  Having come from a banking culture, Saratoga is client-focused and experienced in navigating the challenges that sometimes stand in the way of a successful investment.  As a small, entrepreneurial firm, Saratoga’s deal teams and decision-makers are one and the same; you can always count on a clear dialogue and consistent follow through.  Saratoga is able to provide considerable deal structure flexibility as a result of its mix of BDC, SBIC, and CLO capital available.

Saratoga Investment Corp. Q&A        

What differentiates Saratoga from other middle-market lenders?

Chris Oberbeck: Three things differentiate Saratoga — people, culture and experience. We have a group of people with deep experience both in the private equity side and the mezzanine and senior lending side of businesses.  Over the years, we have looked at thousands of businesses in many different ways and studied a multitude of various types of transactions.  As a result, our people can make decisions rapidly and come up with insightful and creative approaches to specific situations.

Michael Grisius: We’ve designed our organization so clients benefit from our professionals’ experience.   We have a flat organizational structure that lets clients work directly with decision makers.  The professionals doing deals are the same people on the investment committee.  As a result, our clients have high certainty of execution.  In other organizations, one might work for a while on a transaction, but then it goes to a second or third committee and suddenly the client gets a different answer.

Oberbeck: Clients have a timeline and critical path to getting transactions completed.  They don’t want to waste time.  They want to make sure the people they’re working with are the same people making the decisions, and that there isn’t somebody they haven’t met deciding on how the transaction is handled.

Grisius: Another benefit we offer is that we have an SBIC license, and we’re formed as a BDC.  Those structures give us enormous flexibility in terms of the types of financing alternatives we can offer. We can do anything from senior debt to mezzanine capital to second lien financing.  We can be more creative in trying to offer a financing solution for clients coming to us with a need for capital.

 

What financing tools does Saratoga bring to the non-sponsored world?

Oberbeck: A number of the financing tools we bring to the non-sponsored world come from the sponsored world. When we say non-sponsored, we mean companies that don’t have a control shareholder in the form of a private equity firm, a hedge fund or some other sophisticated investor.  These might be family-owned businesses, employee-owned businesses or broadly held companies.  The types of tools we employ include dividend recapitalizations, where people may want to realize some of the value that has appreciated in their businesses but are not interesting in selling out.

Often in non-sponsored businesses, as time goes by, they have concentrated shareholdings, and some equity holders might be in a place where they want to realize their investment, while other shareholders don’t.  The question becomes how do you take out a substantial shareholder — maybe even a control shareholder — without giving over control of the business or having to sell it in its entirety.   We are focused right now on several transactions where we are able to help non-sponsored entities figure out how to readjust their capital structure and even take money off the table for all shareholders in a way that preserves the control of the business with the existing management team.

 

What is the state of the middle-market today?

Grisius: Since the financial crisis, the big factor in the middle market is the dearth of capital available from traditional senior lenders — banks, etc..

 

Oberbeck: The smaller the company, the more complicated its task is to find adequate capital.  Generally speaking in smaller companies, the way they report numbers and the way they look as a company is not as sophisticated, not as packaged, or maybe as well put together as in larger companies.  So, it’s important to develop for them customized solutions in the context of some of the objectives smaller companies have, short of the traditional sale of the company.

Grisius: That’s where we bring our experience in private equity and financing middle market businesses to come up with creative solutions.  In a lot of deals we look at, there isn’t a change of control necessarily. It may be a family-owned business or a non-sponsored transaction where somebody wants to achieve liquidity but still retain ownership.  We can offer a dividend recap or a variety of other creative financing solutions.

Oberbeck: Traditionally a lot of the dividend recaps were done by pretty sophisticated ownerships, such as private equity firms.  Generally, families and management-owned companies didn’t have access to that type of financing.  However, now, we’re seeing more and more non-sponsored companies looking to readjust their ownership positions. They have more sophisticated financing needs and, therefore, are looking to  do certain acquisition type financings.  We’re able to deliver to them these financing techniques.

Flexible Financing Solutions
Saratoga takes a solutions-oriented approach to investing and seek to craft capital structures that work for all stakeholders.  We understand the importance of providing feedback quickly, being creative in transaction structuring, and closing transactions on time.  Saratoga offers a broad range of financing solutions for our partners, including subordinated debt, first and second lien loans, one-stop and unitranche structures and equity co-investments.  As a Business Development Company that includes an SBIC-licensed subsidiary and a Collateralized Loan Obligation (CLO) Fund, Saratoga can consider everything from smaller, junior structures to larger, senior investments.

Partnership Approach
Saratoga seeks to partner with owners and operators of middle market businesses to help create value over the long term.  Our professionals have unique experience investing in all parts of the capital structure across numerous industries.  We use the perspective gained from our experience to support business owners (equity sponsors, fundless sponsors, family-owned businesses) and management teams with patient capital and guidance as they execute their business plans.  We strive to be the turning point in your transaction and believe we can make a difference for our potential partners:

    • Management Teams:  As an SBIC-licensed investor, part of Saratoga’s mandate is to support small businesses.  We are comfortable financing everything from growth plans, through capital investment or add-on acquisitions, to recapitalizations, included ownership transitions and dividends.  We understand the dynamics of entrepreneurial businesses and will work to meet your near- and long-term needs.
    • Sponsors: Saratoga has a long history in private equity.  Having worked with many equity sponsors, both funds and fundless, we understand the need for clear and timely feedback, follow through and dependability.  As importantly, we understand that every deal is different, and we will work with you to custom-tailor a capital solution to the specific objectives and needs of your investment.  We can work to craft a low amortization unitranche solution when free cash flow needs to be reinvested for growth, or we stretch your debt capital with a mezzanine solution to enhance the returns to equity – and everything in between.
    • Fellow Lenders:  Teamwork has always been a hallmark of Saratoga, both internally and externally.  We are always happy to work with a “club” or syndicate and will be as active as is helpful.  We regularly work with fellow debt providers and seek suitable partners to collaborate on larger transactions.

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