Project Palma – Deal Flash

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Infinity are delighted to announce the first investment out of the newly launched regional debt fund, Infinity Debt No.1 LP.

The deal

Infinity provided £6m of mezzanine funding alongside an film senior term debt package (provided by the incumbent lender) in order to facilitate the secondary MBO of the Palma business, allowing senior management to take a majority stake in the company. This positions the business for future organic and acquisitive growth.

Palma is one of the UK’s leading providers of support services to the regional logistics sector. The business’ success is based upon its close customer relationships (essentially operating as a co-operative), low cost efficient operations and full nationwide coverage across a well spread client base (top ten clients c.28% of revenues). Its highly customer-focused approach is beneficial to both sides — independent regional hauliers achieve additional income and incremental margin through increased average vehicle utilisation, while the end users benefit from the bespoke logistic solutions tailored to their collection and delivery needs.

The business benefits from a highly predictable income and margin profile and cash conversion approaching 100% of EBITDA.

Given the attractive credit fundamentals of the deal, the transaction attracted strong interest from a range of senior, mezzanine and unitranche finance providers, resulting in a highly competitive deal process. Despite this, Infinity were able to compete with a large number of lenders and alternative debt providers, and successfully won the mandate through:

  • Infinity’s unique positioning as a regional debt fund with a focus on supporting UK SME’s and the desire by the management to transact this deal with regionally based funders;
  • Dave Furlong’s strong relationships with the senior lender, advisor and financial sponsor;
  • Infinity’s ability to offer strong terms and flexible funding structure that match the needs of the business, allowing management to acquire a majority position;
  • The responsiveness in the speed of decision making and certainty of funding demonstrated by Infinity; and
  • The experience of the Infinity team, with a proven track record of financing such transactions.

Benefits of the deal for Infinity are as follow:

  • The business is extremely well placed for continued growth, underpinned by an experienced and committed management team;
  • Cash generative business and proven track record of strong historical financial performance;
  • Existing PE sponsor will remain as a minority investor (involved since the initial MBO) despite receiving offers for a full exit, reflecting their confidence in management and the business’ prospects;
  • Working with local corporate finance advisors and legal advisors to reinforce the Infinity regional debt fund brand and demonstrate our credibility with regards deal execution.

Forecast investment return

Deal pricing of 4% arrangement fee, 10.5% margin (5% cash paid yield over a 0.5% LIBOR floor plus a 5% PIK margin) and a 4% redemption premium.

This pricing is expected to deliver attractive contracted returns of 12.41% gross IRR, 1.82x money multiple and gross income of £4.94m.

 
Andy Hutchinson