Amalgamated Capital officially launched today, the latest in a string of new lenders cropping up to serve the middle market. It’s been in business for about three weeks, talking to sponsors and reviewing deals. Today I got a bit more color on the lender’s strategy from executive VP and director Tim Clifford.
Clifford, who left Churchill Financial in May, has looked at 25 deals in the past three weeks, with Amalgamated submitting a handful of term sheets. Target transactions would be between $5 million and $60 million of senior debt financing for companies worth less than $150 million, with between $3 million and $20 million of EBITDA.
Read the full Q&A below.
Why did you go to Amalgamated Bank (America’s Labor Bank) from Churchill?
I’ve been doing this for almost 20 years and have gone through a number of cycles. I realized that the lower end of the market was being underserved, that the risk return for that part of the market is attractive, and that very few are serving the middle market. I wanted to become a real new source of financing for them. A lot of the middle market lending companies have financed themselves through CLOs or warehouse strategies. I felt, in order to be a long term player here, you needed to fund yourself through the traditional way of banking, which is through a retail depository base. I shopped the business model around and found Amalgamated Bank. One advantage we have is stability. Funding is a major distinction. We are getting our capital from a depository base, which is sticky and long term.
Commercial banks are active, like Suntrust, Bank of Montreal, Banc of America, on the upper end. But on the lower end, they’re not as active. In the lower end, if anything they are doing asset-based lending, not cash flow.
How much capital will Amalgamated Bank contribute?
We plan to deploy $100 million to 1$50 million a year for. We’ll eventually ramp that up.
Will you eventually bring in additional sources of funding?
Is the cost of capital different because you are getting it from a bank?
Because we get our capital from our depository base, it costs less than folks that would get it through third parties. But we are playing at the lower end of the market, which is deserving of appropriate pricing for the risk we’re taking. We believe we can get very attractive returns.
So you’re saying the lower end of the market is riskier?
The risk profile is different for a smaller company that’s asset-light. The pricing reflects that risk. We’re seeing in some pockets around the country you may have a deal where the traditional bank is pricing it below market because not pricing for the risk. They are playing for the cash management and not as experienced in doing leveraged financing, and the pricing reflects it. We’re coming from a commercial finance background, but the advantage we have is that cost of capital low.
So the regional banks are not pricing loans appropriately?
No, what I’m saying is every deal is different. We’re going to be consistent and have a cost advantage that some folks don’t have.
How will Amalgamated differentiate itself from the rush of new competitors in the market?
We have a number of advantages. We have stability. Private ownership means we’re patient. And our funding is long term and sticky. The second part of our advantage is our focus. We’re not trying to be everything to everybody. We’re not going up-market. We’re staying lower market because that’s our experience and our success. Our product is only senior debt and cash flow loans, and our audience is purely PE sponsors. The other part is being responsive. In additional to capital, private equity firms are looking for trust. Our approval process is very streamlined. We have one group. I can look at the client and let them know quickly, with straightforward, honest answers, as they provide opportunities.
You brought Sean McKeever along with you from Churchill. Anyone else? What is headcount?
We have three folks. Shannon Smith joined us from the Amalgamated Banking side. We’re in discussions with another folks and will make one or two key hires, mostly on the underwriting and portfolio management side, by the end of the year.