You head-up the new unitranche offer that Shawbrook has recently taken to market. In what respects would you say it differs from the acquisition finance loan a bank would typically put out?

The challenge that any bank lender faces is how to position itself in the acquisition finance market.

The direct lending funds have changed the game, and as a bank you have to take what the funds are doing into account and balance that with what you can deliver.

The traditional bank offer will have amortisation, less flexibility and relatively narrow covenant headroom.

We are a bank lender first and foremost, but with our unitranche product we are aspiring to offer something more bespoke and less rigid than you might expect.

Many larger banks, for example, will only operate in preferred sectors and will have little tolerance for complex trading histories.

At Shawbrook we will examine each proposal on its own merits, taking an objective and holistic approach to understanding the business, the sponsor’s strategy and assessing the risk.

What is the thinking behind launching a unitranche offer within a bank? What is the gap it fills that the funds and other banks aren’t addressing?

The focus is on the lower end of mid-market. We have a mandate to fund transactions up to £25m, but our sweet spot is in the £5m to £15m range.

This part of the market remains poorly served by both banks and funds, sitting below the radar for most of the direct lenders, while the traditional structures favoured by the big banks can be too restrictive for smaller companies.

We are bridging the gap between what is seen as a bank loan and what is seen as a fund loan. We are flexible
on structure, and we will do bullet loans, much like the funds, but we can also offer flexible facilities for future acquisitions or capex investment, for example.

The opportunity is to bring the responsive level of service and support that a bank provides on larger deals to the lower mid-market, whilst attempting to offer the speed and entrepreneurial thinking you would ordinarily associate with a fund.

How flexible are you able to be? What could you do that you couldn’t when writing senior debt? What are your red lines?

We will look at each credit on its merits and bring a degree of understanding to the decision-making process. For example, we may have more covenants than a fund, but we can be more generous on headroom. It is about looking at
everything in the round.

What are your thoughts on the wider market? Are lenders pricing risk properly and how do you get comfortable as a lender in a competitive and intermediated market?

If you are aiming to lend £20m or more there is a huge amount of competition, and the advisers drive the lenders hard.

That does filter down to smaller deals to an extent, but when you are playing in the £1m to £5m Ebitda space, there are fewer lending options. It is not as heated.

That said, we do like to be commercial and pragmatic. We figure out the things that are important to us and we do not get into arguments with the sponsor and management team over control of every element of the document.

The sponsor and management team will be all over the detail and it’s important that we buy into their strategy as much as we do the various controls within the business.

The Shawbrook unitranche offer has only been in the market for a short space of time. What has uptake been like?

The response has been very positive. We have done our first two deals, with Alcuin Capital Partners and Cairngorm Capital, so it has been a good start and we are on track to close several more over the coming months.

These transactions were in manufacturing and oil & gas – very different businesses in very different sectors, but our approach is consistent and we’ve created structures that work.

What sponsors have appreciated is the speed of delivery. Deal financing can be clunky, but what we have brought to the table is the ability to make a decision and deliver a fairly
priced, commercial package quickly.

We have short lines of communication and an experienced team with a highly supportive and engaged leadership.

We take advantage of that, particularly during the final stages of a transaction which can be pretty fluid and dynamic.

The positive market response has been great so far but this is just the start. I’m excited by the potential we have to really make a difference in this part of the market.