Q&A Spotlight: Andy Silverman of Parkway Capital

[Published on May 21st 2024]

In this speaker Q&A session with Andy Silverman of Parkway Capital, we explore the cutting-edge innovations that independent sponsors can use to: stand out in a crowded market, build solid long-term relationships with capital providers, and take their deal presentations to the next level.

Q: How can independent sponsors differentiate themselves and surpass capital providers' expectations?

Parkway likes to think about a deal with an independent sponsor as being part of a team.  The good sponsors separate themselves in a few ways.

First, do they treat us, their debt and equity provider as a partner or do they treat us as a vendor?  The groups who take a purely mercenary approach and treat their deal partners poorly or transactionally don’t last. So be nice. Invest in the relationship.

Second, are they able to raise equity capital and show up to the table with something meaningful?  In the lower middle market, meaningful sort of feels like an ability to raise at least $1M.

But if they can’t bring money then they need to be able to bring expertise or experience.  In the case of the former, do they have professional or investing experience in the industry in which they are asking us to invest alongside them?  If they don’t, then do they have access to / relationships with operating partners who do and who can add value?

Third, do they have an investment thesis and strategy, or are they just hoping to print the ticket and get the fee?

Fourth, do they have their own third-party resources that they leverage during due diligence; market study, QoE, environmental, etc?  They need to be able to QB the deal.

Fifth, are they able to put together a cogent presentation on the investment opportunity, or do they just forward the banker’s CIM and ask us to fill in the blanks

Finally, are they good at corporate governance and do they lead the portco’s adoption of a monthly reporting package that distills down the critical information

Q: Could you share some examples of successful use of external resources, along with pitfalls to avoid?

We are doing a deal now with a sponsor who identified a semi-retired executive whose role post-close was to work with the existing management team to develop a scalable sales strategy that would create meaningful equity value.  

Invest in good deal counsel.  We’ve all heard horror stories of sellers working with the lawyer who helped them buy real estate and that lawyer can make the deal go off the rails because they don’t know what market deal terms are.  Find a law firm that will agree to a fixed fee and has worked on deals and has worked with capital providers.  Don’t cheap out.  Sometimes cheap can be expensive.

Q: How can independent sponsors cultivate lasting relationships with capital providers, navigate negotiations effectively, and maximize deal presentation impact?

Remember that careers are long and that people remember bad experiences more clearly than they do good experiences.  Capital providers understand that we won't win every competitive deal, so don’t be afraid to be upfront about where you need folks to be on terms to be considered.  Similarly, don’t signal to someone that they’ll get the deal if they hit your bid and change providers at the last minute.

It's okay to ask for your economics, we get that is how you get paid.  Just be upfront and honest about it and be willing to take a little less if the deal has changed because either you showed up with less money than you said, or because the asset’s performance has ticked down.

Q: What innovative methods or technologies can independent sponsors use to enhance deal presentations while maintaining transparency and prioritizing key components for success?

Not all deals work out, so highlight the areas where your deal could fail and identify the backstops you believe exist or can be created to preserve value.

I led 6 successful deals as an independent sponsor before joining Parkway Capital and put on the hat of a capital provider to independent sponsors.  So, I feel like I am uniquely positioned to share what I learned when I was in the independent sponsor seat.  Backing independent sponsors is hugely important to us at Parkway, 15 of our 18 investments in our fund are with independent sponsors, so anything I can do to continue to advance the success of the independent sponsor asset class provides me with an opportunity to give back, but also, selfishly, helps Parkway in the long run.

Andy will join us for the panel discussion on "Pitch Perfect: Presenting Your Deal to Win Funding From Capital Providers" at the Independent Sponsors & Capital Providers Dealmakers Meeting taking place on June 18th in Chicago. Register now to join us.

Register Today

About the Author
Andy focuses on the investment activities of Parkway Capital, the mezzanine business of Calvert Street Investment Partners. Prior to joining the firm in 2020, Andy focused his investment efforts on distribution, business services and niche manufacturing companies in the lower middle market while at Capital Resource Partners. He also provided market due diligence and strategy consulting to middle market private equity firms while at Investor Group Services. Andy holds a Bachelor of Arts degree in Economics, International Relations, and German from Tufts University.

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