Private Debt Fund Management

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MGG provides bespoke financing solutions to mid-size and growing companies, working with owners and management teams to help build lasting value, address immediate needs, and solve complex situations. Kevin Griffin, CEO and CIO, provides us with a unique insight into the firm’s work.

MGG Investment Group was launched in 2014 by industry veteran Kevin Griffin, with the goal of providing debt capital to the deeply underserved lower- to middle-market (under $50 million EBITDA) companies, especially in situations or asset classes that deter other lenders.

“Demand for capital by mid-size and small growing businesses has for decades exceeded supply, but post-financial crisis the imbalance has become much more acute,” said Mr. Griffin, who has originated, structured and invested more than $3 billion of transactions throughout his nearly two decade career. “We have a history of successfully partnering with our portfolio companies to help them grow while generating attractive risk-adjusted returns for investors through several market cycles.”

Indeed, Mr. Griffin has been working with and investing in middle market companies his entire career. After graduating from Georgetown University, Mr. Griffin started as a work-out and M&A advisor to mid-size companies with leading boutique investment bank Houlihan Lokey. Mr. Griffin began investing initially with American Capital – one of the first public business development companies – then at Fortress Investment Group’s Drawbridge lending fund. Until founding MGG, Mr. Griffin was a Managing Director and on the Credit Committee at Highbridge’s Principal Strategies senior lending group.

“The opportunity has always been large for those familiar with the middle market but as many community banks have disappeared – nearly 2,000 banks have been eliminated since the financial crisis – and big banks have abandoned this space post-crisis, in part due to stricter capital rules, the opportunity has grown quite significantly,” said Mr. Griffin. “What separates us is that we bring a private equity-style due diligence skillset, which is needed to be successful in the direct lending market in which we operate.”

“In particular, we favor and excel at investments in complex and special situations that require distinct underwriting,” he said.

That is why Mr. Griffin has assembled a best-in-class team of middle-market specialists like himself whom he has worked with or known for years. Together with his partner Gregory Racz – who worked with Mr. Griffin during the financial crisis and started his career as a corporate lawyer at leading M&A law firm Wachtell Lipton Rosen & Katz – MGG’s seasoned team hails from blue chip lenders, banks, and accounting firms including Cerberus, TPG, Oaktree, Apollo, JP Morgan, and PwC, and has deep expertise across most industries.

“During our in-depth diligence process, we engage directly with the target company management for many weeks if not for months before lending capital,” Mr. Griffin said.

MGG typically also speaks with the company’s current investors, customers, suppliers, and competitors, among others, during its diligence, and engages nationally recognized third party forensic accountants, attorneys, and industry consultants to supplement and confirm MGG’s in-house efforts, to help identify and assess risks, and to conduct thorough background checks on potential borrowers and their principals.

Very few companies seeking financing make it through MGG’s diligence process. MGG lends capital each year to roughly less than 3% to 5% of all potential borrowers.

This investing discipline over the past nearly two decades and through many market cycles has built a strong record of trust with key industry players and companies, enabling Mr. Griffin and team to develop a unique sourcing network.

“I think we have earned a reputation among borrowers for getting deals done the right way and providing certainty to close,” said Mr. Griffin. “As a result, we continue to enjoy strong repeat business and word-of-mouth referrals.”

MGG typically provides senior secured first lien debt financings. However, its flexible mandate enables it to provide bespoke solutions across the capital structure to meet the needs of the specific borrower. Post-investment, MGG tracks each investment closely. Throughout the life of an investment, MGG takes a “cradle to grave” approach to portfolio management, with deal teams interacting monthly if not weekly with borrowers from origination through realization. MGG’s risk-management first mentality enhances MGG’s ability to monitor assets and identify potential issues at an early stage, as well as to spot potential add-on investment opportunities.

“We take tremendous pride in serving as a trusted partner to companies and entrepreneurs to help them achieve their goals,” said Mr. Griffin. “What is exciting is that the U.S. middle market is the fifth largest global economy with hundreds of thousands of companies. As we look to the future, we see lots of opportunities to help owners and management teams, and we will continue with our current approach of selecting the most attractive private investments in order to provide our investors with the strongest possible returns.”

Company: MGG Investment Group LP

Contact Name: Gregory Racz

Email: [email protected]

Web Address: www.mgginv.com

Address: 888 Seventh Avenue, 43rd Floor, New York, NY 10106

Telephone: 212-356-6100

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Beware Trumponomics, Warns Financial Advisory Giant

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Donald Trump is wrapping up misguided policies that will potentially threaten the U.S. and global economy with sensible supply side reforms, warns the boss of one of the world’s largest independent financial advisory organisations.

The comments from Nigel Green, founder and chief executive of deVere Group, come as the outspoken billionaire frontrunner prepares for the latest Republican presidential candidate this evening.

Mr Green observes: “Trump is a Big Picture guy – and he has the soaring rhetoric to go with it. But the details of his economic plans appear sketchy. The nuts and bolts of ‘Trumponomics’ are somewhat hard to decipher.”

He continues: “It is alarming that the most visible and recognizable GOP candidate seems to be using his more sensible policies to disguise the more ill-conceived ones; ones that potentially threaten the U.S., and therefore the global, economy.Specifically, he has set out bold supply side reforms to restructure and simplify America’s tax code. Most Americans, he says, will end up paying less tax.

“Generally, the more dollars in the pockets of businesses, workers and families who can spend, invest and save as they please, and less in the government’s coffers – which are wide open to waste and abuse – the better.”

The highest marginal income rate would drop from nearly 40 per cent to 25 per cent, middle-income earners would pay 10 or 20 per cent, and anyone earning less than $25,000 a year would pay no income tax at all. Trump would ditch the marriage penalty and the estate tax and the alternative minimum tax. Companies would pay a maximum of 15 per cent of their income to the government.

“Not surprisingly, Trump’s plans to overhaul the tax system are receiving populist support,” says Mr Green.

He goes on to say: “However, behind the headline spinners are some misguided policies that could cost the U.S., and therefore global, economy.For instance, Trump’s immigration policy is achingly naïve. If it were enforced, the labour force would shrink and real GDP would fall. Both supply and demand would be affected.

“Take a look at just one sector – agriculture, which is dependant on cheap immigrant labour. Farming incomes would fall and food will become more expensive.Trump loves to talk trade and to show he is a hustler. Whilst it is true he has exceptional form in business, his political policies are somewhat flawed.He intends to negotiate with China to prevent it from manipulating its currency – and keeping it too low for U.S. manufacturers from competing.

“The fact of the matter is when China’s currency is devalued, their goods become cheaper and Americans get to buy things cheaper than if they were produced in America. He claims this plan would bring back jobs to the U.S., but it is highly questionable if those jobs would come back. Indeed, many argue the jobs to which he’s referring are ‘the jobs of yesterday.’

“In addition, Trump wants to impose tariffs on imported goods. He has proposed a 35 per cent tax on non U.S. car manufacturers, for example. Again, this might bring back American jobs, but there’s a good chance that it won’t and that American consumers simply end up paying more – 35 per cent more – for products made outside the U.S. and this, surely, would hit the American economy.”

deVere CEO Nigel Green concludes: “Donald Trump is wrapping up misguided policies that will potentially threaten the U.S. and global economy with sensible supply side reforms. Beware the wolf in sheep’s clothing of Trumponomics.” 

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Private Equity Interest in Retail Remains High Despite Mixed Holiday Outlook

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Now deep into the holiday season, some observers are cautiously optimistic towards the outlook for the retail sector, while others are outright skeptical. At the same time, the private equity community remains interested in retail, believing that the sector can offer the opportunity to achieve scalable growth.

These are some of the observations shared by Burt Feinberg, President, CIT Commercial & Industrial Finance, a division of CIT Group Inc., a leading provider of commercial lending and leasing services, in “CIT Executive Insights: Commercial & Industrial – Retail Expectations” (cit.com/feinberg), the latest piece of market intelligence in the CIT Executive Insights video series.

“Listen closely and you’ll hear mixed messages from financial analysts and in the media regarding retail,” said Feinberg. “Despite all this skepticism and potential volatility, the private equity community likes retail. Why? They believe that the right concept can scale quickly. Through the right combination of investment in e-commerce and digital platforms, plus the expansion of the store footprint, revenues can grow dramatically.”

Some of the other trends Feinberg expands upon include E-commerce and Brick-and-Mortar joining forces. Whether retailers are focusing on near-term tactics or long-term strategies, the increased fusion between brick-and-mortar and web and mobile is key. This combination builds brands, customer loyalty and growth for investors. The companies that achieve this balance will be the winners in the retail sector.

Furthermore, the use of mobile technology and social media has grown in importance. More goods were actually purchased via mobile devices last holiday season than on the original computer-based e-commerce platforms. In addition, the use of social media has sped up the spread of word of mouth from weeks to instantaneous and could create incredible demand for a new product.

With the ubiquity of Internet and mobile technologies, retailers are leveraging data mining techniques, proving their e-commerce sophistication. Loyalty programs, targeted marketing and consumer profile-based promotions can build momentum and strong revenue results.

Additionally, fewer links in supply chain means faster business cycle. Some retailers, many of them from abroad, have re-engineered the entire supply chain, gaining speed to market and cost efficiencies. Combine that with social media and the entire cycle from production to “sell out” has shortened immensely.

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VPG Signs Definitive Agreement To Acquire Stress-Tek, Inc.

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Vishay Precision Group, Inc., a leading producer of precision sensors and systems, announced that it has entered into a definitive agreement to acquire Stress-Tek, Inc. of Kent, Washington, a privately held company. The acquisition is expected to close by December 31, 2015, subject to the satisfaction of customary conditions.

Stress-Tek is a designer and manufacturer of state-of-the-art, rugged and reliable strain gage-based load cells and force measurement systems primarily servicing the North American market. Their sensors and display systems are used in a wide range of industries, predominantly in transportation and trucking, for timber, refuse, aggregate, mining and general trucking applications.

In commenting on the acquisition, Marc Zandman, Chairman of the Board of VPG said, “We are excited to welcome the Stress-Tek family of products into VPG. This acquisition supports our corporate growth strategy and allows us to expand our existing product portfolio to new end markets and geographic areas.”

Ziv Shoshani, VPG’s chief executive officer said, “Stress-Tek is an excellent fit for our onboard weighing product line. They are well respected in the industries they serve. The company offers an extensive line of load cells. They also design and manufacture the electronics to integrate with the load cells and sensors to produce complete measurement solutions.”

The purchase price for this business is approximately $20.0 million, which includes the acquisition of real estate valued at $5.5 million, subject to customary post-closing adjustments. VPG will finance the acquisition through a combination of cash on hand and third party borrowings. We expect that Stress-Tek will achieve approximately $9.0 million in annual net sales and approximately $1.1 million in annual EBITDA in 2015. With expected cost synergies, we anticipate that Stress-Tek’s annual EBITDA will increase to approximately $3.0 million over two years.

 

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67% of Oil and Gas Companies Ready to Do Deals Next Year

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More than two-thirds of global oil and gas executives expect to pursue an acquisition in the next 12 months, according to EY’s Oil & Gas Capital Confidence Barometer. This represents a 10 percentage point increase from deal expectations reported in April and follows a lackluster market to date.

Deal volume in the oil and gas sector in the first three quarters of 2015 was dismal, with activity falling nearly 40% from the same period in 2014. However, close to 90% of oil and gas executives expect the M&A market to improve in the next 12 months — a sharp increase from 50% of respondents a year ago.

Andy Brogan, EY Global Oil & Gas Transactions Leader, says: “Declining M&A activity in the oil and gas sector in the first part of the year resulted from, in part, a lack of quality assets on the market. That’s changing and now we’re seeing companies looking at multiple acquisitions. Fifty-eight percent of executives already have three or more deals in the pipeline compared to just 12% six months ago.”

While transaction announcements in recent months show the climate for large acquisitions remains accommodative, the majority of deal volume is expected to come from middle market deals valued under US$250m. The upper-middle-market is also gaining traction, with 33% of companies planning deals between US$250m and US$1b.

While the appetite for deals is on the rise, challenges persist: 83% of companies either failed to complete or canceled a planned acquisition in the last year.

Brogan says: “Competition from other buyers tops the list of challenges facing companies pursuing acquisitions. Concerns about regulatory or antitrust reviews and a widening valuation gap are also influencing executives’ willingness to withdraw from acquisitions.”

Continued oil price volatility has widened the valuation gap between buyers and sellers in recent months. The majority of executives believe the gap is larger than six months ago, but 66% expect it to remain the same as companies adjust to a lower-for-longer price outlook.

Brogan says: “There’s a stronger sense of determination across the oil and gas industry that’s setting the stage for a more active M&A market in the year ahead. Executives continue to focus on conserving cash and reining in costs but are considering acquisition opportunities more seriously. Transactions will play a major role in determining who survives the downturn in prices.”

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Single-Family Offices Seek Superior Investment Performance via Private Equity

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iCapital Network, an online platform allowing qualified investors and their advisors access to a curated selection of private investments, launched an annual report reviewing single-family office investment activities specifically in private equity.

The report, which was based on data collected from 162 single-family offices from around the globe with an average net worth of $918 million, found that a large percentage reported strong performance via private equity investments, especially in contrast to other vehicles and asset classes held in their portfolios.

“In our view, the potential for superior investment returns is the single most influential factor in why private equity is viewed so favorably by single-family office investors these days,” said Lawrence Calcano, Managing Partner of iCapital Network. “And likely the potential opportunity to take more of a hands-on role in managing or supervising a direct investment also adds to the appeal – because in many cases, families can provide valuable insights and leadership drawn from their own experience as business leaders.”

Seventy percent of single-family offices surveyed said that their private equity funds outperformed other investments within their portfolios, and 75 percent said that their direct investments outperformed other holdings.

“Many wealthy families take a longer term investment approach and understand that the premium for illiquidity comes from allowing companies to pursue strategies that often require four to six years to execute as well as additional capital,” said Nick Veronis, Co-Founder and Managing Partner of iCapital Network. “These families also appreciate the active role that fund managers play, working closely with their portfolio companies to achieve their goals – that alignment and consistent engagement typically does not exist in the public markets.”

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HFF Secures Acquisition Financing for 7700 Parmer in Austin, Texas

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Holliday Fenoglio Fowler, L.P. (HFF) announced that it has secured acquisition financing for 7700 Parmer, a 913,000-square-foot, Class A office campus in northwest Austin, Texas.

Working on behalf of the borrower, Hallandale Beach, Florida-based Accesso Partners, LLC, HFF placed the loan with JPMorgan Chase Bank, National Association. Loan proceeds were used to acquire the property.

7700 Parmer is located in northwest Austin’s technology corridor about five miles north of the MoPac Expressway/Research Boulevard interchange. This location is near Apple’s $300 million campus that is under construction and the corporate campuses for Dell, National Semiconductor, IBM and a planned campus for Charles Schwab. 7700 Parmer is 94 percent leased to tenants including Google, Oracle, eBay/Pay Pal, Electronic Arts, Polycom and Dun & Bradstreet. The property features a state-of-the-art auditorium, full-service cafeteria with multiple culinary options, baseball field, basketball courts, soccer field, volleyball court and a daycare facility.

HFF’s debt placement team representing the borrower was led by senior managing director Susan Hill.

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CEO Expectations for the Economy Worsen

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For the third quarter in a row, CEOs expressed growing caution about the U.S. economy’s near-term prospects and indicated they are moderating their plans for capital investment over the next six months, according to the Business Roundtable fourth quarter 2015 CEO Economic Outlook Survey.

The Business Roundtable CEO Economic Outlook Index – a composite of CEO projections for sales and plans for capital spending and hiring over the next six months – declined 6.6 points, from 74.1 in the third quarter of 2015 to 67.5 in the fourth quarter. This third consecutive quarterly decline brought the Index to its lowest level in three years.

For the first six months of 2016, CEO expectations for sales decreased by 3.2 points and their plans for capital expenditures decreased by 16.7 points. Hiring plans were essentially unchanged from last quarter when they declined by nearly 8 points.

In their first estimate of real GDP growth for 2016, CEOs expect 2.4 percent growth.

“Lower expectations for sales and investment reflect CEOs’ ongoing caution about the near-term prospects for U.S. economic growth,” said Randall Stephenson, Chairman of Business Roundtable, and Chairman and CEO of AT&T Inc. “Congress and the Administration need to work together to continue to fund the government, expand trade, agree on a long-term transportation infrastructure investment plan, reauthorize the U.S. Export-Import Bank and renew expired tax provisions.”

Stephenson continued, “It makes no sense to allow tax policies, such as bonus depreciation and the R&D Tax Credit, to expire this year absent broader corporate tax reform.”
In response to a question posed annually in the fourth quarter, CEOs, once again, reported that regulation was the top cost pressure facing their businesses, followed by labor costs and health care costs. “If we want to see the U.S. economy and hiring really take off, Washington needs to adopt a smarter approach to regulation,” Stephenson added.

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