Mayer Brown: Capital solutions are rewriting the rulebook
Partner content, in association with international law firm Mayer Brown
Historically, capital solutions were often associated with distressed situations or urgent deleveraging.
Now, they are being rebranded as growth catalysts.
According to Mark Evans, partner at international law firm Mayer Brown, businesses are increasingly relying on capital solutions not only to bolster corporate balance sheets but also to accelerate growth and build acquisition war chests.
“This has allowed us to access the business side from a much wider pool of investors, and to provide bespoke solutions rather than one size fits all,” he told City PM.
He stated that capital solutions “is really exciting to be in that area at the moment,” as it is evolving.
What’s more, there is a continuous learning loop for advisers, as it is no longer a “one size fits all” solution.
“The structures are sophisticated, and they are continuing to grow in sophistication as the market develops,” he added.
There is a drive for this bespoke financing arrangement due to the UK’s reliable and consistent regulatory and legal regimes, which provide certainty for investors and companies.
Evans explained: “We have seen movements in regulation [in the UK]…moving more in a thawing direction, and things are becoming more attractive for business, rather than less, notwithstanding recent tax changes.”
The Mayer Brown partner noted that, while global macro events have tightened access to credit, the UK is positioning itself as a hub where “the gap” left by traditional banks is being aggressively filled by long-term, sophisticated capital providers.
Capital solutions market has evolved
The rapid rise of evergreen structures, an investment vehicle popular in the US Business Development Company (BDC) market, is now slowing.
Evans explained: “What we’re seeing is a something of a mismatch between liquidity expectations.
“The structures are being used to hold somewhat illiquid instruments, and an investor is expecting to be able to redeem on a regular basis and that has created something of a problem, because if you’re unable to redeem when you want to, it’s not attractive.”
He pointed out that, as a tool, evergreen structures are “incredibly useful” and in many cases, “can be used to have a sort of semi-closed type structure.”
“However, the use of them is becoming much more thoughtful in terms of the types of assets into which they’re investing, and also how redemption windows are worked.”
In a market defined by rapid innovation, sophisticated, bespoke capital solutions are being deployed as a “dual coin” strategy. They are being designed to insulate businesses against future solvency risks while providing the liquidity needed for aggressive, cross-border acquisitions.
“We’re working with our clients to develop new structures and what we’re seeing across the entire spectrum is that capital solutions is not just the liability management tool, it is a growth tool as well,” Evans added.