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 funds, credit funds and hedge funds.

Tom Kelleher, Co-Managing Director of B. Riley Financial, said: “The launch of our financial sponsor group is a key milestone for B. Riley as it allows us to deliver greater value to mid-market sponsors. and alternative capital managers. We are dedicating resources to expand our relationship base through a centralized function to ensure that our customers and partners can take advantage of the breadth of diverse capabilities that our platform has to offer. “

Dan Kraft and Tim Bottrell, Co-Directors, are invited to co-lead this new group, each with extensive expertise and relationships in this market. Kraft, who is based in Los Angeles, joins the company with more than seven years of experience in investment banking, having most recently served as vice president of the financial sponsors group at JP Morgan. Earlier in his career, he worked at Bank of America serving large cap investment grade clients. Bottrell, who is based in New York, joined B. Riley of the Global Markets division of Goldman Sachs where he led the multi-asset origination effort.

In their new roles, Kraft and Bottrell focus on developing nationwide sponsor relationships in coordination with B. Riley platform colleagues who regularly interact with sponsors. The company’s subsidiaries include investment bank B. Riley Securities; B. Riley Retail Solutions (formerly known as Great American Group); B. Riley Advisory Services, which includes the historic companies Great American Group Evaluation and GlassRatner; and B. Riley Wealth Management.

In the following interview, Kraft and Bottrell provide their thoughts on the opportunities they see for B. Riley to expand his presence in this market and provide a unique and comprehensive range 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 several reasons behind the timing,” Kraft said. “If you think about it from B. Riley’s perspective, over the past five years, several different companies have come together under the B. Riley umbrella, including Great American Group, FBR, Wunderlich Securities and GlassRatner. With the successful integration of these companies, senior management realized that many different areas of the business ‘touch’ private equity in different ways, and this justified establishing this group as a point of contact. centralized to improve these interactions. “

Kraft continued, “From a market perspective, private equity dry powder remains at record levels. There were record fundraisers throughout 2019 and the trend continued. Tim and I are delighted because capital deployment is always a priority for all the sponsors who have just raised new funds. And with COVID-19 as the backdrop to 2020, most sponsors have been impacted by their portfolio companies. Portfolio management has never had a more important place in the work of a fund manager. The addition of our group also coincides with the global rebranding of B. Riley, whereby the company ditched the platform names inherited from the acquired companies and was renamed under the B. Riley brand.

Bottrell added, “I agree with all of the points Dan mentioned. I would also mention that this is a natural evolution of B. Riley’s growth. From a workforce perspective alone, the company has grown from a few hundred employees to over 1,000 employees and a market capitalization of over $ 900 million. On the strength of our balance sheet and our desire to grow, we will be able to continue to develop. It is also a natural evolution of the position of our competitors in the current market.

Leaving the big bank environment
Bottrell and Kraft both have extensive experience in the sponsor finance market – each passing to B. Riley from major banking institutions, Bottrell joining the company after Goldman Sachs and Kraft from JP Morgan. Making the change in a banking environment can be a significant cultural adjustment. We were curious as to why the B. Riley opportunity was so interesting to them, both personally and professionally.

“First and foremost, on a personal level, it was an opportunity for me to take a leadership position and to benefit from the many relationships that I have been able to build and forge at Goldman Sachs,” said Bottrell. “In addition, it is important to note that B. Riley does not try to play in all markets. This means that we are on our way and exceptionally good at serving the middle market space. It is therefore a great opportunity for me to join a company that is well positioned in the middle market. On the business side, we have what I believe is a strategic advantage. We have remarkably diverse services that many of our mid-market competitors do not. Our management seeks to differentiate B. Riley from our competitors and they take a very entrepreneurial approach to create this group. The opportunity to build this group with Dan is something that I haven’t been able to find in a lot of other places.

Kraft echoed Bottrell’s point of view by adding: “On a personal level, this is an opportunity for me to be more entrepreneurial in my career and to move away from the big bank mentality. The role in which I intervene is much more flexible. We are improving a business rather than trying to help start one. I would also add, from B. Riley’s perspective, that we really are a one-stop-shop when working with private equity firms. We bring a lot to the table, including finding new investment opportunities, helping with financing, supporting lenders in appraisal and appraisal work, and much more. Collectively, we can bring tremendous creativity to a private equity firm. All of these factors made the decision to join B. Riley quite easy.

Differentiation in the market
Competing in the trade finance market has always been a difficult endeavor and in many ways the market today is in a hyper-competitive state requiring a very effective go-to-market strategy to differentiate any sponsoring financial group among the many. many banking groups and non-banking players. Kraft and Bottrell both agree that differentiation will be the key to their success.

“In many ways, we will look, smell and smell like a Banker Sponsor in any of our competitor stores,” says Kraft. “At B. Riley, Tim and I will be the centralized points of contact for the private equity community, including all types of alternative asset managers, family offices, hedge funds, credit funds, CLOs. and more. This will create a less confusing relationship with our business. As late as the beginning of September, we were still operating under the names of our old companies and as a result, members of the private equity community did not always understand the fact that if you did dealing with one of our former companies, you may have done business with B. Riley Financial. We’re going to educate the market to make sure everyone understands the full depth of the platform now that we’ve rebranded.

Bottrell agrees, stating, “From a differentiation standpoint, we may look like some of our competition, but Dan and I are going to work in each line of business and think about the company’s products holistically. Our roles, outside of building and maintaining private equity relationships, are to ensure that we marry product solutions in each different division within B. Riley and that we deliver the best results to our customers. We’re not going to be a one or two turn pony. On the contrary, we want to make sure that the market understands that we are making a concerted effort to offer all the capabilities of large-scale enterprises. “

Look ahead
Bottrell and Kraft agree that sponsor fundraising activity will be very competitive going forward and that the COVID-19 pandemic has and will continue to impact sponsor fundraising activity, forcing them to enter the market in new ways.

“There is still a lot of green pasture and business to be done due to the emergence of so many private equity, private credit and specialist finance companies,” Bottrell said. “The direct lending space, in terms of assets under management, has exploded over the past five years. There has never been so much money invested in terms of direct or asset-backed loans as there is today. I think COVID-19 has made those of us in the sponsor fundraising business more transparent and active because the pandemic has created the need for us to figure out how to effectively stand in front of our customers to establish a better dialogue. and active. “

“I agree with Tim. Here we are in December with equity markets at all-time highs and continuing to hit record highs on a daily basis. When the declines occurred in the stock markets earlier this year, the bank financing market also dried up. Sponsors no longer had access to the cheap cost of capital they had enjoyed for years. We are still in the midst of the pandemic, but debt financing and the stock markets have both recovered. We are once again in an environment where we have record high levels of dry powder, an equity market at all-time highs and a solid bank financing market. Sponsors are now back to where they were in Q1 2020, pursuing many deals where valuations are still high, but they need to put the capital to work. B. Riley is well placed to help in many ways, as Tim said. Not just from a consultative point of view, but also to the extent that there are more operational-oriented sponsors than just financial buyers. We’re here to help all of the portfolio companies impacted by the pandemic, as well as some of the new targets people are looking to acquire. “