In mid-November, B. Riley Financial announced the formation of its Financial Sponsors Group – a new group focused on developing and maintaining relationships with alternative capital managers, including private equity firms, family offices, sovereign wealth, credit funds and hedge funds.
Tom Kelleher, co-Chief Executive Officer, B. Riley Financial commented, “The launch of our Financial Sponsors Group is a key milestone for B. Riley, in enabling us to deliver greater value for middle-market sponsors and alternative capital managers. We are dedicating resources to expand our relationship base through a centralized function to ensure our clients and partners can leverage the breadth of diverse capabilities our platform has to offer.”
Tapped to co-lead this new group are Dan Kraft and Tim Bottrell, Co-Directors – each possessing deep expertise and relationships in this market. Kraft, who is based in Los Angeles, joins the firm with over seven years of investment banking experience, having most recently served as a Vice President in the Financial Sponsors Group at J.P. Morgan. Earlier in his career, he was with Bank of America serving large-cap investment grade clients. Bottrell, who is based in New York, joined B. Riley from Goldman Sachs Global Markets Division where he led the Multi-Asset Originations effort.
In their new roles, Kraft and Bottrell are focused on developing relationships with sponsors nationwide in coordination with colleagues across the B. Riley platform who regularly interact with sponsors. The company’s affiliates include investment bank B. Riley Securities; retail liquidation firm B. Riley Retail Solutions (formerly known as Great American Group); B. Riley Advisory Services, which is comprised of legacy businesses Great American Group appraisal and GlassRatner; and B. Riley Wealth Management.
In the following interview, both Kraft and Bottrell provide their insights into the opportunities they see for B. Riley to expand its presence in this market and provide a unique and comprehensive slate of financial products to the commercial finance industry.
We began our interview with Dan Kraft, asking why B. Riley Financial determined this was the right time to enter the sponsor finance market. “Well, there are a few reasons behind the timing,” said Kraft. “If you think about it from the B. Riley perspective, over the last five years there have been several different businesses put together under the B. Riley umbrella – including Great American Group, FBR, Wunderlich Securities, and GlassRatner. With the successful integration of these businesses, senior management realized that many different areas of the firm ‘touch’ private equity in different ways, and it warranted establishing this group as a centralized touchpoint to enhance those interactions.”
Kraft continued, “From a market perspective, private equity dry powder remains at record levels. There were record fund raises throughout 2019 and the trend has continued. Tim and I are excited because capital deployment is still top of mind for all the sponsors that just raised new funds. And with COVID-19 in the background of 2020, most sponsors have been impacted vis-à-vis their portfolio companies. Portfolio management has never been a larger part of a fund managers’ job. The addition of our group also coincides with the overall rebrand of B. Riley, whereby the company dropped the legacy platform names of the companies acquired, and have rebranded under the B. Riley brand.”
Bottrell added, “I agree with all the points Dan mentioned. I would also mention it’s a natural evolution of how much B. Riley has grown. From a headcount perspective alone, the firm has grown from a few hundred employees to over 1,000 employees and a market capitalization of over $900 million. With the strength of our balance sheet and desire to grow, we will be able to continue to expand. This is also a natural evolution of where our competitors are playing in today’s market.”
Leaving the Big Bank Environment
Both Bottrell and Kraft possess extensive experience in the sponsor finance market – each moving to B. Riley from large banking institutions, with Bottrell joining the company from Goldman Sachs and Kraft coming from J.P. Morgan. Making the change from a bank environment can be a significant cultural adjustment. We were curious to understand why the B. Riley opportunity was so interesting for them both personally and professionally.
“First and foremost, on the personal side it was an opportunity for me to take a leadership position and take advantage of the many relationships I was able to build and forge at Goldman Sachs,” said Bottrell. “Additionally, it’s important to note that B. Riley is not trying to play in all markets. Meaning, we are in our lane and exceptionally good at serving the middle-market space. So, this is a great opportunity for me to join a firm that is well positioned in the middle-market. On the business side, we have what I believe to be strategic edge. We possess remarkably diverse services that many of our middle-market competitors do not offer. Our leadership is seeking to differentiate B. Riley from our competitors and they are taking a very entrepreneurial approach to create this group. The opportunity to build this group with Dan is something I could not find in many other places.”
Kraft echoes Bottrell’s view adding, “On the personal side this is an opportunity for me to be more entrepreneurial with my career and step away from the big bank mentality. The role I’m stepping into is much more flexible. We are enhancing a business rather than trying to help build one. I would also add, from a B. Riley perspective, we are truly a one-stop shop when working with private equity firms. We bring a great deal to the table including sourcing new investment opportunities, helping with financings, supporting lenders with evaluation and appraisal work, and much more. Collectively, we can bring tremendous creativity to a private equity firm. All these factors made the decision quite easy to join B. Riley.”
Differentiation in the Market
To compete in the commercial finance market has always been a difficult undertaking and by many accounts, the market is in a hyper-competitive state today requiring a highly effective go-to-market strategy to differentiate any sponsor finance group among the many bank and non-bank players. Both Kraft and Bottrell certainly agree that differentiation will be key to their success.
“In many ways we will look, feel and smell like a sponsor banker at any of our competing shops,” says Kraft. “At B. Riley, Tim and I will be the centralized points of contact for the private equity community – including all types of alterative asset managers, family offices, hedge funds, credit funds, CLOs and more. It will create a less confusing relationship with our firm. As recently as early September, we were still conducting business under our legacy company names, and as a result folks in the private equity community didn’t always appreciate the fact that if you were doing business with one of our legacy companies, you may have been doing business with B. Riley Financial. We will be educating the market to make sure everyone understands the full depth of the platform now that we have rebranded.
Bottrell concurs stating, “From a differentiation standpoint, we may look like some of our competitors, but Dan and I will be working across every single business line and thinking about the firm’s products holistically. Our roles outside of building and maintaining private equity relationships is to make sure that we are marrying the product solutions across every different division within B. Riley, and delivering the best results for our clients. We are not going to be a one or two trick pony. Rather, we want to make sure the market understands that we are making a concerted effort to deliver the firms’ full capabilities broadly.”
Looking Ahead
Both Bottrell and Kraft agree that the sponsor finance business will be highly competitive in the future and that the COVID-19 pandemic has and will continue to impact the sponsor finance business requiring them to address the market in new ways.
“There is still plenty of green pasture and business to be done because of the emergence of so many private equity, private credit and specialty finance firms,” says Bottrell. “The direct lending space, in terms of assets under management, has blown up over the past five years. There’s never been more money being put to work in terms of direct or asset-backed lending than there is today. I think COVID-19 has caused those of us in the sponsor finance business to be more transparent and more active because the pandemic has created the need for us to figure out how to effectively stay in front of our clients to build a better and active dialogue.”
“I agree with Tim. Here we are in December with the equity markets at all-time highs and continuing to reach record levels daily. When the declines happened in the equity markets earlier this year, the bank financing market also dried up. Sponsors no longer had access to the cheap cost of capital that they enjoyed for years. We are still in the midst of the pandemic, but debt financing and equity markets have both recovered. We are once again in an environment where we have record levels of dry powder, an equity market at all-time highs, and a strong bank financing market. Sponsors are now back to where they were in the first quarter of 2020, chasing many deals where valuations are still high, but they need to put capital to work. B. Riley is well positioned to help in many ways as Tim said. Not just from an advisory perspective, but also to the extent there are sponsors more operationally focused as opposed to just financial buyers. We are here to help with all portfolio companies impacted by the pandemic, as well as some of the new targets folks are looking to acquire.”