Some days mid-size companies must feel like the ‘middle child.’ Sandwiched between ‘big brother’ corporations and ‘younger sibling’ small businesses, it can be tough to reach their growth or transition goals with the standard solutions from some banks.
Fortunately, Scotiabank Business Banking has proven its ability to deliver creative debt and equity solutions in partnership with Roynat Capital, a Scotiabank subsidiary that provides junior capital to mid-market Canadian companies.
Roynat’s track record is especially evident lately, as they help mid-size companies shake off the impacts of the pandemic and resume growth or assist Baby Boom owners in transitioning out of their businesses to retirement.
Serving niche mid-market needs
For almost 60 years, Roynat has been creating financing solutions for companies whose needs are outside more conventional lending offerings,” explains Derek Strong, Roynat’s Regional Director in Vancouver, who himself has devoted the past 26 years to serving mid-sized clients across British Columbia at Roynat. “We are known as a provider of junior capital and trusted advisors to middle market companies across Canada who are looking for more creative solutions for growth and transition capital for their business.”
In particular, the Roynat team delivers complementary lending solutions to Scotiabank’s Business Banking products. This could be as straight forward as higher ratio real estate loans - so companies can acquire owner-occupied realty and preserve working capital - to subordinate or mezzanine debt products that provide growth or transition capital if a borrower’s leverage needs are beyond what their bank provides.
Roynat also offers private equity solutions, by investing directly in the business, or alongside partner investors, to provide ‘patient capital’ that preserves their cash flow and enables them to focus on growth. Companies can then apply that capital to mergers or expansion, executing longer-term plans, or developing a financial exit for the owner.
“These can be complex financial situations for a mid-sized company on their growth or maturity path,” explains Robyn Chisholm, Vice President, Commercial Banking in the B.C. & Yukon Region. “It’s our job to make sure we understand the clients’ short and long-term aspirations and bring in the right colleagues from Roynat to help realize those goals.”
Many mid-sized companies try to operate in a lean fashion, and the owner has done a great job for many years building the business, but the world of junior capital is pretty foreign to them. They really want to talk with a trusted advisor,”
observes John Kirincic, Director at Roynat Equity Partners, who often works with clients or prospects seeking advice on an emerging challenge.
Flexible solutions for changing times
Roynat’s solutions have been particularly pertinent to mid-sized business, to satisfy long-anticipated - or unprecedented - financial needs, including the global pandemic.
“Some companies have experienced financial issues caused by COVID-19, while others have not been as negatively affected. They see opportunities to acquire other businesses but are hesitant to take on more debt because of overall economic concerns,” explains Strong. “As a result, they may consider other forms of long-term capital, like equity, that helps them continue to grow their business without taking on the prospect of too much debt.”
Kirincic adds that many companies in industrial services, technology services, e-commerce, health services and food sectors are well positioned for such growth opportunities. Other companies may have simply taken on additional debt over the past year, to weather current business conditions, and they now wish to recapitalize with equity, to reduce that debt on their balance sheet.
Helping owners craft ‘exit plans’
Other mid-market needs are more predictable, like the wave of Baby Boomers who are retiring, and stepping back from the companies they built over many years. In these cases, Scotiabank Business Banking and Roynat provide financing options to help company owners transition their business, ranging from management buy-ins or buy-outs, to a private equity sale to new partners.
For example, Roynat assisted one long-time Scotiabank Business Banking client at a key point in their company’s lifecycle. Operating in the IT/managed services sector, the company’s balance sheet reflected high debt levels, but strong cash flow. When its ability to grow further was constrained by existing loans, Roynat provided subordinate debt to create fresh liquidity. Later, when the company’s owner decided to ‘take some chips off the table,’ Roynat Equity Partners acquired a minority position in the firm. The owner could then fund his wealth and retirement plan with a portion of those proceeds, while new capital was also injected in the company to fuel continued growth.
“This was a great case of our Business Banking and Roynat teams working seamlessly together to satisfy a clients’ evolving needs,” says Chisholm, who notes that Scotiabank and Roynat Relationship Managers are often co-located in shared offices. “We can walk a client across the hall to make an introduction and attend meetings together. It’s a one-stop offering for all capital solutions and it’s not common, since many competitors only make a referral to a third-party who doesn’t have the same relationship with, or understanding of, the client.”
Complementary services for any need, anywhere
The complementary nature of lending products offered by Scotiabank Business Banking was highlighted when a B.C.-based manufacturer, and a long-time Business Banking customer, outgrew their existing factory. They hoped to purchase a larger facility and did not want to deplete working capital to make the down payment required for a conventional mortgage. After reviewing options presented by Business Banking and Roynat, the client selected Roynat’s high ratio, owner-occupied mortgage, which allowed them to minimize their downpayment and preserve cash for business growth. A few years later, after their new facility appreciated in value, the client converted their loan into a conventional mortgage with Scotiabank.
On-the-ground teams are important, observes Kirincic, “If you zoom in on B.C., you see a very different economy than, say, Ontario, and we have a greater proportion of smaller companies on the landscape, with many of them in the knowledge-based and new-economy sectors. That means we really tailor our services to the type of supplementary capital our local clients require.”
At the end of the day, it’s clear that high potential ‘middle child’ companies can find the right-fit advice, borrowing or equity resources to succeed.
Sums up Chisholm, “With Roynat by our side, we can bring really unique advice to the table that our mid-sized customers may not have considered. We have the ability to touch all parts of their balance sheet to meet their growth and transition goals, and that gives them a real advantage.”