LANSING (WWJ) – A public-private partnership involving state and federal government and Dow Chemical Co. is pumping up to $130 million in new business financing over five years into the state of Michigan.
The money will go to existing Michigan companies that are finding it hard to get financing to grow.
The InvestMichigan Mezzanine Fund will be funded with $80 million from the U.S. Small Business Administration. Also contributing: $35 million from Michigan Growth Capital Partners L.P. and $15 million from Dow Chemical.
Michigan Growth Capital Partners is an investment partnership whose anchor investor is the State of Michigan Retirement Systems.
The fund was formed in partnership with the SBA through its new Start-Up America Impact Investment SBIC Initiative. Michigan is the first state to benefit from the initiative, which aims to commit $1 billion nationwide.
“Working with our partners, small and medium companies, we understand that private capital is the lifeblood they so desperately need,” said Andrew Liveris, Dow chairman and CEO. “We call upon our corporate colleagues to become partners in Start-Up America. Corporate America needs to show action, not just talk. We believe this is an inspired new national model.”
SBA administrator Karen Mills said the program will be self-funding through the repayment of its investments, meaning the program will operate “at no cost to taxpayers.”
Mezzanine funding is defined as a hybrid of debt and equity financing that is is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.
Kelly Williams, managing director of Credit Suisse’s Customized Fund Investment Group — which runs the current InvestMichigan Growth Capital Fund program for younger, smaller companies — said the fund will make investments of $5 million to $15 million in cash-flow-positive companies with revenues of $20 million or more. She said the companies being funded will be either companies based in Michigan, which have “substantial operations in Michigan, or who plan to relocate to the state.”
Williams said such companies “have been challenged in obtaining financing” in recent years. The funds, she said, will be used for ownership transitions, leveraged buyouts, expansion opportunities, recapitalizations and refinancings.
Williams said Credit Suisse’s office in Troy and its partner in InvestMichigan, Farmington Hills-based Beringea LLC, are already “actively scouting for deals.”
Gov. Rick Snyder, who was part of the conference call announcing the new fund, said he believes Michigan’s “innovation economy is ready to emerge and grow quickly. I’ve got a private equity background myself so I appreciate the need for private capital investment, and what an important part it plays in the food chain of growing your business.” He said the fund will allow Michigan to “continue the reinvention process.”
The SBA’s Mills noted that “Half of working Americans either own or work for a small business, and two out of every three jobs come from small business. So if we are going to outbuild and out-innovate the rest of the world, it is going to be because we build and grow our small business. High growth business are particularly important because the data show they are responsible for the lion’s share of new jobs.”
And she said that Michigan was chosen to kick off the national effort because “the need is there. Unemployment in Michigan is high, and over 90 percent of the counties qualify for economic distress assistance from the Department of Commerce. So this is an economy in transition. And it is also an economy with many assets — many engineers, a great work force, extraordinary universities and extraordinary entrepreneurs.” And she said the SBA was impressed with the success the $185 million InvestMichigan fund was already having.
The fund will be a licensed Small Business Investment Company (“SBIC”) formed by Credit Suisse’s Customized Fund Investment Group and Beringea, Michigan’s largest private equity fund. The InvestMichigan Mezzanine Fund is the newest fund in the InvestMichigan Program, which was initiated in 2008.
The new $130 million InvestMichigan Mezzanine Fund and the existing $185 million InvestMichigan Growth Capital Fund are co-managed by CFIG and Beringea.