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Are mid-market listed businesses missing out on the new funding opportunities provided b.....

Are mid-market listed businesses missing out on the new funding opportunities provided by the rise of non-bank lenders?

In the first half of 2015 almost 80% of all European lending to sponsor backed companies was from non-bank lenders. This compares to mid-market listed businesses where, for example, from a review of the recent annual accounts of the top 25 companies in the FTSE UK AIM, none had secured funding from a non-bank lender. Why the difference? And are mid-market listed businesses missing out on new funding opportunities?

Grant Thornton carried out a survey of 24 non-bank lenders (collectively representing over €50 billion of direct lending capital) to understand this difference and try to explain why comparatively few listed companies have explored this funding avenue compared to sponsor backed companies.

Grant Thornton's analysis identified a significant appetite from non-bank lenders for lending to mid-market* listed companies with over four-fifths (83%) of non-bank lenders noting they would consider investing in a mid-market listed company, despite only half having completed any deals in this segment of the market. In the past year, only two of the funds surveyed had more than 25% of their lending to mid-market listed companies. The overwhelming majority of lending from non-bank sources is still to private equity backed companies.

Nearly three quarters (73%) of non-bank funders believe there is a lack of detailed awareness among management teams of the benefits of non-bank lending. More than half (55%) of respondents suggested they had taken steps, or are considering ways to raise their profile and the benefits of non-bank lending with mid-market listed companies.

When asked what their key considerations were for providing debt to mid-market listed companies, non-bank lenders pointed to reliable management information (68%) and clear consideration on how funds will be utilised (59%). Senior loan facilities (82%) and unitranche loans (82%) – combining a senior and junior loan into one facility with a single, blended margin – proved the most popular funding structures considered. Over two thirds (73%) would consider a typical term of five years or more and 18% would consider eight years or more .

Shaun O'Callaghan, Partner and Head of Debt Advisory at Grant Thornton UK LLP commented: "Non-bank lenders can offer long term, committed, non-amortising debt with looser covenants, providing a valuable source of growth capital for businesses to invest with confidence. This can provide the long term capital needed to accelerate growth without diluting equity returns."

*Mid-market companies defined as those with turnover between £50million to £500million.