By Roy L. Williams — The Birmingham News
The worst recession in decades is making life difficult for companies needing financing to make ends meet, capital to expand or complete mergers.
Duane Donner , managing director of Founders Investment Banking, says his firm, which helps put deals together, has even seen some companies experiencing cuts in bank credit lines turn to his firm for short-term financing.
The investment backdrop has grown as the recession grinds on. Donner said private equity investment across the U.S. dropped from $528 billion in 2007 to $131 billion last year. In 2009, private equity investment is at an even slower pace, he said.
“It’s been well-publicized that the broader capital markets have been experiencing unprecedented challenges,” Donner said. “The reality is that debt is more difficult to source and equity investors are being more selective.”
Donner and his partners started Founders in 2004 to focus on putting together financial deals for clients across the country. But lately, Donner says, he has seen a growing number of business getting pinched by their banks turn to his firm for help.
“We are providing gap financing of between $500,000 and $4 million to companies getting squeezed by big banks,” he said.
Bob Robicheaux, a UAB marketing professor and retailing expert, said it is not surprising to see companies turn to alternative sources of financing. He said a growing number of small businesses and retailers are having problems paying their bills due to a combination of sluggish sales and banks tightening their credit lines.
“I’m familiar with a local golf company selling clubs and supplies that got in financial trouble after the bank cut its credit,” Robicheaux said. “It’s making it tough for small businesses to survive. They are going to have to tighten their belts and watch inventory closely.”
Donner said his typical client has between $10 million and $100 million in annual revenue, and “even for these companies it is hard to access capital markets right now.” Founders’ technology division, headed by Zane Tarence, targets smaller companies with annual sales ranging from $2 million to $20 million.
Despite the tough economic environment and tighter lending standards, Donner said money can still be found for those with good credit, experience and ability to navigate the financing markets. It takes longer, but deals can still be done, he said.
He cited a deal Founders Investment Banking completed in August, in which it helped Birmingham-based Walpar Inc., a designer and fabricator of highway signage, sell a stake to equity investors Rock Gate Partners and Peninsula Capital Partners.
A family-owned business founded 30 years ago, Walpar had been trying to find an investment partner for years. Donner said the company had a potential deal lined up last year, but the deal was scrapped last November after the financial markets collapsed.
“Ultimately, this transaction enabled Walpar’s shareholders to accomplish their goals despite the market challenges, aligning with financing providers that can and will provide the capital needed to further expand the company,” he said.
Allen Parker, who will continue in his role as Walpar’s president and retained significant equity ownership, said that the deal will help his company. “It positions our business to expand our presence and reach,” Parker said.
The Birmingham News sat down with Duane Donner, Managing Partner, to learn how Founders is filling a need for middle market companies. Click here to read the story on al.com.