Direct Lending

Direct Lending provides customised senior and subordinated debt financing solutions to privately-owned businesses across the European mid-market.

We create bespoke and flexible debt financing solutions that are 'tailor-made' to the specific requirements of the entrepreneurs, families and private equity sponsors with whom we work.

We structure our investments to meet a very broad range of financing needs faced by middle-market companies, including buyouts, business expansion, acquisitions, refinancings and recapitalisations.

Our team is currently investing its fourth-generation direct lending fund, Five Arrows Debt Partners IV (FADP IV).

Based in London, Paris, New York and Luxembourg, our experienced and international investment team provides solutions across the debt capital structure, including unitranche, second lien, mezzanine, PIK and preferred equity financings, with a view to delivering attractive risk-adjusted returns for our investors.

Our investment strategy

We target privately-owned businesses across the European middle-market – the traditional strong-hold of Rothschild & Co.

Our focus is on companies with enterprise values of €50 to €750 million and our target investment size is €25 to €125 million per transaction.

Alongside co-investment partners we have the ability to underwrite up to €200 million.

Middle-market focus

Our experience has shown that the middle-market segment provides a deep pool of attractive, growth-oriented companies which are leading players in their specific niche markets, but which are increasingly under-serviced by mainstream banks.

Rothschild & Co’s long heritage in this market provides us with proprietary insight and opportunities that represent a powerful competitive advantage.

Investment criteria

We focus on profitable, established companies led by talented management teams that are leaders in their market segments. Given our focus on businesses that combine organic growth potential with strong resilience and downside protection, we favour investments in the following core sectors:

  • Healthcare and Education
  • Software, Data and IT Services
  • Business and Financial Services

Our key investment yardsticks therefore include:

  • Entrenched market positions and durable competitive advantages
  • A high degree of predictability and visibility of earnings
  • Demonstrated track record of cash-flow generation and ability to earn attractive returns on capital across multiple economic cycles

We are passionate about supporting businesses owned by entrepreneurs, families and/or private equity sponsors in achieving their growth and value-creation objectives.

Our experience over time has shown that investing in high-quality, defensible businesses is the best route to generating attractive risk-adjusted returns consistently.

Solutions across the debt capital structure

There are two core principles which govern our investment approach:

  • Bespoke and flexible structuring, whereby we tailor each financing solution to address the specific requirements of the shareholders and management teams with whom we work
  • A focus on ensuring that the returns we seek are commensurate with the risks we are taking, enabling us to generate attractive risk-adjusted returns for our investors

With these principles in mind, we have developed the capability to provide solutions across the debt capital structure, enabling us to provide the optimal financing package for each opportunity that we pursue.

Specifically, we can provide the following instruments:

  • Unitranche
  • Senior lien
  • Mezzanine
  • PIK notes
  • Preferred equity

Our approach

Flexible structuring

We believe that each company that we look to support has its own unique set of aspirations and requirements.

Wherever possible – and within the framework of our assessment of risk and return – we therefore adopt a flexible and customised approach to structuring each of our investments to ensure these needs are met.

This enables us to structure financing solutions for a very broad range of potential situations:

Buyout financing:

  • Supporting private equity sponsors with tailor-made financing packages

Expansion capital:

  • Funding expansion into new products, markets or geographies by providing financing for capital investment or working capital
  • Financing accretive bolt-on acquisitions where equity is unduly dilutive or in short supply

Refinancing and recapitalisation:

  • Creating equity value release events for shareholders
  • Providing additional cash headroom into financing structures and addressing looming debt maturities
  • Replacing uncooperative lenders

Shareholder restructuring:

  • Facilitating changes in ownership structure, generational change, succession planning and management incentivisation without recourse to equity funding
Supportive financing partner

We aspire to be a supportive and constructive partner to the entrepreneurs, families, private equity sponsors and management teams with whom we work.

We have a long-term, partnership-oriented approach - reflecting our heritage as a family business with more than 200 years of investing history - and we believe that this mind-set provides us with a perspective that is truly distinct from our competitors.

We are committed to acting in a transparent, efficient and responsive manner in order to provide a high-quality service offering that meets the needs of the transaction situations that we are addressing.

Added-value investor

We believe that as part of the Rothschild & Co group we are uniquely well-positioned to make a real difference to our investment partners.

We have the capability - within of course the context of strict adherence to client confidentiality - to draw upon the privileged market intelligence, industry insight and unparalleled contact networks available within the firm, and to share this knowledge and these connections with our partners where relevant.

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