Slowed commercial bank lending and an increasing number of over-leveraged companies that need access to capital are creating opportunities for Cleary Gull Inc., a Milwaukee investment banking and wealth management firm.
The company’s “special situations” practice, which functions as a division of its investment banking area, has helped Cleary Gull maintain roughly the same volume of business in investment banking that it had one year ago, said Ron Miller and Greg Gorlinski, managing directors with the firm.
“We’re very busy now – about as busy now as a year ago,” Miller said. “We’re tied with the record number of leads and we’re at near record levels. But the mix of business is different. The ability to shift has allowed us to keep our volumes stable in difficult times.”
The “special situations” practice helps businesses gain access to capital, whether they’ve been turned down by a bank or are over-leveraged. The practice’s offerings have always been available from Cleary Gull, but recent market conditions have increased demand.
“We’ve finalized that part of the business over the last six months,” Miller said.
“It’s another service offering – we’re all (the company’s investment bankers) skilled in it,” Gorlinski said.
About half of Cleary Gull’s new business in investment banking is in its special situations practice, Miller said. The largest share of that new business is helping companies who have negative balance sheets or need to repay a significant debt, and need to do it through a partial or complete sale of the company.
“If the company is over-leveraged and needs to pay the bank back or is in a cyclical trough, we can help them,” Miller said. “We can sell (the company), raise the appropriate debt or equity to give them the appropriate capital status.”
While Cleary Gull helps companies that are over-leveraged, Miller emphasized that the firm does not steer companies through turnarounds.
“We’re not going to come in and be temporary operators,” he said. “We represent going concerns and know how to sell them for strategic value. Hence, we’re focusing on good companies with cyclical or balance sheet issues.”
Cleary Gull’s special situations practice has also gained traction in helping businesses access capital in an environment where banks have been hesitant to lend.
“Strong companies are having difficulty in raising growth capital through traditional channels,” Miller said. “We’re in constant contact with financial services that are interested in lending.”
Cleary Gull has a network of senior, regional and local banks that have been less impacted by the financial fallout and are interested in commercial lending, Gorlinski said. It also has an extensive network of Midwestern and national mezzanine lenders and private equity groups that are either interested in lending or purchasing a minority stake in businesses.
Alternative funding sources like mezzanine or private equity do come with higher interest rates than bank financing that was available in recent years, but are much more willing to lend than banks now.
“The mezzanine funds in Chicago and Minneapolis are very active and the private equity groups are more interested and might be willing to take a minority stake now,” Miller said.
“We’re going up to the senior (debt) side as well,” Gorlinski said. “We’re trying to fill a void for the senior lenders that are out of the market.”
