The Drawdown (TDD): What is Leverest’s origin story?
Jan-Moritz Hohn (JMH): Let me explain where I come from and how it led to Leverest. I studied business and started out in strategy consulting, advising private equity firms on their commercial due diligences. From there, I joined a midmarket private equity firm, Avedon Capital Partners, as an investment professional.
I watched very bright and talented people spend a lot of their time on managing manual, repetitive processes with an inefficient outcome
During my time as a private equity investor, I was managing financing processes for the portfolio companies as well as during acquisitions. I noticed the processes were tremendously tedious and inefficient, and the technology to streamline them had not arrived yet in the industry. Sometimes it seemed the last big technological innovation in the industry was the introduction of Microsoft Office.
As a result, I watched very bright and talented people spend a lot of their time on managing manual, repetitive processes with an inefficient outcome – that companies did not always find the best-suited financing structure that was available in the market.
Here we saw huge potential for improvement. Financing structures of companies are a big lever, both for the industry but also, through it, for society at large. We saw a significant opportunity to make a positive impact here.
TDD: Can you walk me through what Leverest does?
JMH: Essentially, we provide a digital backbone for all capital market activities of our customers, advisers and private equity firms. Our platform provides multiple features including a workflow solution and a digital marketplace, as well as a lending market database that helps customers streamline capital market relationships.
You can then manage the entire workflow digitally through the platform
Say you are a GP or a debt adviser looking for a financing solution. You submit the specifics on the platform and our proprietary matching algorithm will generate a list of the most suitable lenders for your specific financing need. Once you have selected lenders for your longlist, you can then manage the entire workflow digitally through the platform. Leverest aggregates all communications, which also allows you to negotiate the terms and even start long-form documentation – all in one place.
Throughout the process, you have access to a third-party directory that lists service providers related to different stages of the lending process, for example credit lawyers. You can invite them to the deal and conveniently integrate them into the process and share information.
In a nutshell, the entire lending process and relationships with your lenders or GPs – depending on where you sit – and service providers are managed efficiently on the platform.
TDD: From where you sit, you must have a good view on this market. Recently there seems to be an increase in due diligence, what is your take on that?
JMH: We absolutely see an increase in due diligence. As a long-term trend, we observe that the established streams of due diligence are becoming deeper and more thorough. Additionally, you see new ones cropping up, especially around ESG, cybersecurity and HR, which was not so prevalent say, 10 years ago.
In recent months, we have seen due diligence become an even deeper and longer process. The last two years, 2021 and 2022, were tough for private equity firms when it came to competitive pricing and competitive processes, with limited room for thorough due diligence. We now see that revert and as a result, bidders are becoming more thorough in their DD.
TDD: How is Basel III impacting this space?
JMH: Basel III’s impact on our space is mainly concerning the minimum capital requirements and an increase in the common equity ratio. This means banks will need to hold more liquidity for high risk assets and it will change how they look at leveraged loans, as these are becoming costlier for them and thus less attractive. This regulation fuelled the growth of private debt as unregulated loans.
We have already seen this during the last few years. In Germany, around 50% of deals are financed by private debt now, while in the UK it is even c.60%. Regulations such as Basel III are part of the reason why private debt is experiencing an uptick.
We see an unbroken trend towards private debt as an asset class
The long-term trend towards private debt was slightly reverted recently by rising interest rates, as cash yield for many private debt structures became double digit and brought companies to their limits, making cheaper bank debt attractive again – despite lower leverage. However, debt funds reacted with some flexibility in structure, such as PIK options to reduce cash yield. Long term, we see an unbroken trend towards private debt as an asset class – also driven by regulation.
TDD: Leaving the broader market and returning to Leverest, what do the company’s next 12 months look like?
JMH: Next year is all about expansion and growth for us. We have a strong product and proof of concept in the DACH region and want to roll this out internationally. In mainland Europe, we are focusing on the Nordics, Spain and France first.
We are currently testing several AI features and plan to roll them out beginning next year with some great customer benefits
Recently, we expanded into the UK with Aditya Khanduri as our regional manager and the first pair of boots on the ground. While we want to expand our operations in the UK, we also see it as a gateway to the US, which will be a future focus market of ours and at some point we will establish a permanent presence in North America.
Finally, while we feel the core product is very well developed, we are currently testing several AI features and plan to roll them out beginning next year with some great customer benefits. Keep an eye on us in January!
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