Growing and independent lower middle market businesses often need external capital to expand their operations. Lateral specializes in providing growth capital and assistance for a company facing a specific growth event, such as building a new plant, launching a new product or expanding into new geographies. Such discontinuous event-driven financings do not fit well with today’s commercial bank lending models and our loan-based structure is much less dilutive than private equity financings in the lower middle market which are predominantly control-oriented.
Our strategy includes the following elements:
Market Focus: Owner-operated independent companies (annual revenues less than $100 million) with no institutional investors and significant hard assets or contracts.
Growth Inflection Point: $5-25 MM funding with discrete milestones. Lateral helps with strategic growth initiatives, capital expenditures optimization, customer intros, team building. Loan covenants are keyed to milestones.
Pre-investment: Proven but sub-scale business model, strong collateral but insufficient cash flow to accelerate growth or to qualify for traditional bank financing.
Post-investment: Company’s owners have scaled their business, increased value of their holdings without significant dilution.
Short-term acceleration opportunity: Facing a growth event to increase revenues by 50-100% over the next 3 years and to generate strong cashflows with the benefit of operating leverage
Loan size/tenor: $5-25 million short-term funding over 18-36 months
Value-based underwriting: Focus on the borrower’s existing and future collateral value instead of historical cash flow. Collateral must be in the form of hard assets, recurring/contracted revenues or substantial intellectual property.
Business building: Lateral assists in recruiting executives, customer introductions and acquisition identification. Lateral supports exit or refinancing for our portfolio companies by working with equity investors and strategic buyers.