In my final brief letter from America for 2018 I wanted to look back and look forwards, although I am reminded of a client of mine who once told me “Stephen, all you get from looking back is a sore neck” – thanks Tom Mitchell at NVT – the lookback will be brief!
2018 was a big year for Metis Partners and for my family, as you know we finally made the move to USA and established Metis Partners Inc. I am enthused that, even from the first quarter here, there is a real and genuine appetite for IP backed lending and investment, unlike I have seen in 15 years. Not only have we performed IP valuations for innovative US companies seeking bridging finance to cover short term funding gaps in growth plans; which is good new for Metis, but I have had strong interest from US lenders and private equity keen to explore opportunities to lend and/or invest in established British heritage brands including sports, retail and fashion; which is good news for UK business.
Against that backdrop, it won’t come as a surprise that I jumped at the chance to bring one of our most successful UK events, our Metis Partners’ Burns Supper, to NYC where we will host our network of US clients and contacts. Our inaugural Burns Supper in NYC is on Wednesday 24th January, followed by our 7th consecutive Burns Night in London on 30th January. I’ve had some fun explaining haggis to our US clients and contacts, what it is, how you catch it and how you eat it. Surprisingly on a NYC visit I found there is a prominent statue of Roberts Burns in Central Park, so he is locally acquainted. I hope all of our close friends and clients can make one or even both of those dates (there is prize for those who can attend both) and if you can’t find your invite in your inbox then please let me know and I will fix that.
Having one eye on the US and the other on the UK, it strikes me that living in a global market should enable us to more efficiently tap into a global supply of funding (even if that doesn’t apply to personal credit – see my second Letter from America). The days of corporates seeking 10-year loans to fund capex are well behind us; capital is now flexible and transferable, being deployed in different markets with a clear transition from tangible assets to intangibles, and IP assets now commonly acknowledged as the critical asset in many businesses. Not surprising then that lenders are creating products that securitise these key IP assets. In the US we have a specialist pool of “loan to own” capital providers (not to be confused with those seeking to buy out existing debt at a discount) that are lending new money to retail, fashion and sports brands. Their primary intention is to generate a return on the lending but they are also comfortable operators of the brands (directly or through a partner e.g rolling out a franchise or out-licensing business model with the newly acquired underlying brand and related IP assets) if faced with a downside scenario. The current modest level of distressed debt opportunities in the US has resulted in a growing number of US funds seeking some “action” through cross-border opportunities in European and UK distressed situations.
We have supported US banks and private equity investing in and lending to distressed UK businesses that have valuable brands and IP assets, including those going through a short term, but nonetheless painful, business model transition from offline to online, from indirect to direct marketing, or from retail to brand licensing. Those same US banks and investors are also offering bridging loans for 6-12 months, for example, to cover a delayed equity fundraise, accelerate a growth phase, support a business restructuring or as project finance, provided they can take security over the key IP assets and the associated revenue streams (that must at least cover the interest payments). Why is this US approach not yet being regularly seen in the UK? I think it’s because the US probably has a longer history of brand and other IP asset sales from Chap 11 scenarios and perhaps because there is a more entrepreneurial risk-taking culture, but even mainstream banks are looking at LTVs of up to 50% against IP assets of corporate clients based on a “stressed / conservative” IP valuations. Naturally, they also want to know what the IP assets could be sold for in an accelerated M&A situation or from insolvency (an OLV or FLV), but thankfully that valuation is neither for the books, nor the lending decision. What’s exciting for 2019 is those same US lenders now want to offer that same support to UK businesses, stealing a march on their UK competitors – as Bieber says “it’s a no brainer”!
Finally, although this is my ‘letter from America’ I cannot sign off the year without mentioning a couple of positive stories that came from our UK team as we closed out 2018. We had an uptick in IP due diligence for UK lenders / investors in Q4, supporting transactions for three IP-rich companies operating in oil & gas, tech and med-tech spaces. I hope more of these deals for IP-rich companies will follow this year as the dark clouds and uncertainty over Brexit finally disappear and clear the path for businesses to commit to new strategies and perhaps finally make some tough decisions about their future growth plans and direction and the funding needed to do so.
Our Corporate Recovery team ended the year on a high, playing an active role in successful business turnarounds, not only preserving the valuable IP but saving jobs in two IP-rich businesses in financial distress and it felt good. Keen to replicate these successes we examined these cases to identify what was different to our usual IP asset sales from distress. In both cases we were engaged by the restructuring firm earlier than usual and that definitely helped; giving us a few more weeks to engage with staff to identify the key IP assets in the business, time to prepare them for buyer diligence and also time to manage, in advance, key IP related risks for buyers before advertising the IP assets for sale. Facilitating a quick and smooth transition of the IP assets (such as the brand, industry approvals & accreditations, manufacturing processes, patents and product know-how) to the buyer also gives them the ability to quickly generate cash flow through previously underexploited channels, business platforms and business models. The Metis team remarked that it was genuinely rewarding playing a part in saving jobs and I hope we can work with corporates and their restructuring advisors to do more of the same in 2019.
So until my next Metis Letter from America I hope you have a great weekend!