Mid-Cap Tech Companies Take Lessons on Accessing Infrastructure Capital
Richard Knowlton, a Managing Director on the Technology, Media and Telecom Finance team at Societe Generale Americas, recently joined a panel of experts at the TMT M&A Forum USA 2019, sponsored by TMT Finance, to discuss telecoms, media and technology investment.
During a panel on financing in the technology infrastructure space, panelists were asked about what types of structures were being used, how deal structures differ in the US and Europe, and, concerning greenfield investments, what factors lenders should look at before deciding to participate in a digital infrastructure project.
Concerning the challenge of high growth and mid-cap TMT companies increasing their access to capital, Knowlton expressed that there are clear tradeoffs between the liquidity of the rated, covenant-lite Term Loan B market, and the pricing and undrawn capacity of the structured finance lending market.
He noted that when capex is a fraction of EBITDA, Term Loan B is probably the best option. However, if capex is a multiple of EBITDA, structured finance lending may be a better choice. He also made the point that outside of the U.S. there is growing investor demand for unrated, broadband infrastructure credit facilities with project-style lender protection and that growth of infrastructure credit funds should stimulate similar demand in the U.S. market.
The growth of infrastructure funds and their impact on the market was also discussed. Knowlton contended that, as an investor class, infrastructure funds have longer holding periods than traditional private equity funds for TMT companies. Therefore, TMT companies are more likely to pursue organic growth strategies with an infrastructure investor rather than look primarily to M&A for growth. He also observed that infrastructure funds are accustomed to lenders that understand negative EBITDA-Capex for extended periods and are comfortable with the deeper levels of control in structured finance lending. He added that Infrastructure funds also have a greater desire for structures that accommodate a material construction/completion risk period.
Asked how investors can mitigate construction risk, Knowlton offered that investors should take lessons from project finance structures.
Societe Generale is an experienced lender in this space, having a long track-record financing digital infrastructure in Europe and having used hybrid structures that blend knowledge of broadband networks with the build-out analysis and drawing provisions of infrastructure projects; techniques Societe Generale Americas is now bringing to the U.S.
Unless otherwise stated, any views or opinions expressed herein are solely those of Richard Knowlton and may differ from the views and opinions of others at, or other departments or divisions of, Societe Generale and its affiliates. No part of Richard Knowlton’s compensation was, is or will be related, directly or indirectly to the specific views expressed herein. This material is provided for information purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. The information contained herein has been obtained from, and is based upon, sources believed to be reliable, but Societe Generale and its affiliates make no representation as to its accuracy and completeness. The views and opinions contained herein are those of the author of this material as of the date of this material and are subject to change without notice. Neither Richard Knowlton nor Societe Generale has any obligation to update, modify or otherwise notify the recipient in the event any information contained herein, including any opinion or view, changes or becomes inaccurate. To the maximum extent possible at law, Societe Generale does not accept any liability whatsoever arising from the use of the material or information contained herein.
This publication should not be construed as investment research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Therefore, even if it contains a research recommendation, it should be treated as a marketing communication. This publication is not subject to any prohibition on dealing ahead of the dissemination of investment research. Notwithstanding the preceding sentence Societe Generale is required to have policies in place to manage the conflicts which may arise in the production of its research, including preventing dealing ahead of investment research.