Lionel Laurant is an Executive Vice President and a Portfolio Manager for PIMCO (Pacific Investment Management Company) in charge of distressed investments in Europe. Salesclub is delighted to present you an interview about investing in B2B companies: how to make a good impression to investors and what essential difference is between various countries?
Please, tell us more about PIMCO and your responsibilities there?
PIMCO is a large asset manager, which controls about 1.6 trillion dollars within that huge capital. There is a subset, which we call alternatives investment, and it totals about 26 billion dollars. I’m part of that pool of capital.
Moreover, we manage a fund of 1.5 billion, which invests in the companies that are facing some financial stress or distress. It is worth to mention that we invest either in secondary market or in the primary market, meaning in this case that we land companies directly.
You mentioned that PIMCO invest in B2B companies as well. In your opinion, why B2B companies need investment? Why they should choose investment company rather than banks?
Typically, companies that we finance require capital to expand or to refinance some debt. So PIMCO as a provider of capital offer a number of benefits versus bank financing.
Investment management firm can be more flexible in terms of financing solutions. For example, we can provide longer maturity days or currencies.
Sometimes that kind of companies are able to provide financing and some structures that banks are unwilling to finance. For instance, in some cases the company needs to preserve cash, so we can structure loans by which the company doesn’t need to pay us an interest rate in cash but rather in what we called PIK flow – payment-in-kind instrument.
Also we are quicker than most banks. It is a true that at the end of the day a lot of the companies that we deal with are companies that don’t have access to the bank financing. That’s why they need to turn to sources of private capital to finance themselves.
Could you name main criteria you look at before investing in a company?
- I would say the main criteria is business: what does the company do? In which industry it operates? Is that industry perspective? Can we hope growth? Is the company well positioned to expand in that industry? Is it a weak or a strong player?
- One of the main factors we value is the worth of company. When we have done research and thinking about company, there is a question of how much value cushion there is between the amount of debt we provide and the total amount of value. So value is the major driver.
- Investment management companies also look at the casual generation: how much cash does the company generate? We look at different measures of the cash generations but one of them is definitely what we call leveraged free cash flow (i. e. the amount cash that the company generates after having paid the interest on the debt).
- Another criteria would be a security package. When we lend to a company we look at security that the company can pledge to the loan and the way they guarantee repay the loan. On top of that, we get security over certain assets. For example, the loan can be secured with real estate asset: piece of land, a building and so on.
How a B2B company should sell themselves to investors? What makes a good impression to you?
Looking at the end of the day, there is a question of value and growth. The main factor to generate them is your product. It needs to be attractive to people and people need to be ready to pay the price for it.
In which countries had you invested and what significant cultural differences you noticed?
We had invested in a number of countries including UK, France, Germany, Poland, Italy and a couple of others. Of course there are significant cultural differences. One of the major driver of differences across countries is the insolvency regime.
When you buy debt of a distress company it is very important to understand the rules of the insolvency framework in that country. Every country has very a different rules. Like in the UK, if the company does not pay you back, you have a lot more flexibility than in France or Italy to get your money back.