UK-based Palio Capital Partners is fundraising for its maiden fund which will provide senior debt and mezzanine loans to businesses with an enterprise value of between 10 million pounds ($15.8 million)and 100 million pounds. The European Investment Fund has already pledged a cornerstone investment to Palio’s Superflex Fund I LP, taking the fund a third of the way to its first close of £100 million.
Following a surge in demand for non-bank finance and an estimated £25 billion of debt funding and refinancing needed for UK SME businesses between 2012 and 2016, Palio Capital Partners (Palio) is carving a new niche in the UK market by providing senior debt and mezzanine loans to businesses with an enterprise value of between £10-£100 million. Following long established success in the US where the debt financing market is valued at around $100 billion, Palio is pioneering the model in the UK lower mid-market, where a significant credit supply gap has been created by the banks’ failure to lend to SME’s.
This innovative lending model has been enthusiastically received by European investors and The European Investment Fund (EIF), has already pledged a cornerstone investment to Palio’s Superflex Fund I LP (Superflex), taking the fund a third of the way to its first close of £100 million, despite the challenging fundraising environment.
Mike Henebery, CEO and founder of Palio comments: “The SME market is the engine-room of the UK economy but the major constraint on the growth of these businesses is the scarcity of debt finance. The government has recognised this issue and recently launched the Business Finance Partnership to ease the flow of credit by investing £1 billion through managed funds that lend directly to UK SME’s. We fully support the government’s plans and have been invited to participate in this project which we see as a force for good.”
Jerry Wilson, CIO of Palio comments: “Our new fund will allow institutional investors unprecedented access to superior risk-adjusted returns from UK backed SMEs. There is an imbalance between demand and supply of senior debt for private equity deals and this will result in higher pricing and better overall lending terms, giving the asset class a very favourable risk-return profile. This will attract capital inflows from institutional investors in search of superior returns. The value of private equity deals in the lower mid-market has more than trebled in the last three years to £3.4 billion and we are receiving significant interest from the wider private equity community who see the attraction of our flexible loan product.”
EIF’s cornerstone backing reflects the strength of Palio’s investment team, led by CIO Jerry Wilson whose track record comprises structuring both senior loans and mezzanine instruments totaling £3 billion to over 80 UK companies. Mike and Jerry have 30 years of combined investment experience in structuring equity and debt in the UK lower mid-market and are responsible for sourcing, executing and managing the Fund’s investments. Darren Gibson, COO of Palio is responsible for the firms fund management operations and has primary responsibility for all operational activities of the fund.
Palio plans to build a hybrid loan portfolio, predominantly debt and mezzanine, of approximately £250 million. Initially it will lend exclusively to UK SMEs with experienced management, capable of attracting private equity backing and thereby representing a relatively safe lending proposition.