Cash Flow Deal Funding Gap

Dennis McCarthy – dennis@boustead1828.com – 213-222-8260

In prior articles, I’ve highlighted investor’s strong demand for current cash flow deals.

Many investors want to get a good portion of their return along the way and don’t want their whole return at risk for the future.

In today’s financial market, that makes sense.  Who knows what economic environment we’ll face in the next 5 years, not to mention further into the future.

So, capital is flowing into funds providing current returns, like infrastructure, energy, alternative energy, real assets, mezzanine and similar funds.

This capital inflow is generally good for bankers like me with projects seeking capital.

The problem, however, is that with so much capital flowing into funds, funds have grown to be enormous. These enormous funds look to invest in projects requiring large amounts of capital.

Ironically, with all that capital flowing into funds looking for a current return, there’s a funding gap for smaller projects and companies.

For example, we’re in the market with a renewable energy project with a total capital budget north of $350 million.  That amounts gets attention.

The project, however, has attracted strong interest from lenders so the actual equity check required is only 10-15% of the capital budget.

Sounds good, doesn’t it.  The problem is that many funds find a project requiring less than $50 million of equity to be too small. For many funds, under $100 million is too small.

Fortunately for our client, and us, some funds will consider smaller equity investments, preferring to avoid the intense competition for large deals.

I believe that when we look back in 5 to 10 years, smaller equity check deals, under $100 million, will have provided a better return than that of the huge deals.  Time will tell.

If your fund will consider a project where the equity check is smaller, please contact us.  We have attractive projects and would like to get to know just what type of project fits your fund.

Also, if you have a cash flow project, please contact us to discuss your capital market plans.