The Searchers Guide to working with Debt

Alex Miller - Longreach Credit Investors: Crafting Tailored Loans for Australian and New Zealand Businesses

• Tom McGhie • Season 2 • Episode 3

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Join us as Alex Miller unpacks his journey from Adelaide to London and back to Australia, culminating in his role at Longreach Credit Investors. You'll learn about Longreach's strategic focus on Australian and New Zealand's middle market SMEs, their unique approach to bespoke senior secured loans, and the art of relationship-building that sets them apart. Alex shares the firm's sector-agnostic mandate, deep-dives into their lending strategies, and explains how each loan is meticulously crafted to meet the distinct needs of their clients.

In this episode, we also explore the proactive measures Longreach employs to support businesses under financial strain. We discuss the importance and value of having a team with insolvency and restructuring experience and why timely information from borrowers is crucial. Alex delves into the involvement of Longreach's investment committee in understanding business culture and key stakeholders. Additionally, we discuss the burgeoning Entrepreneurship Through Acquisition (ETA) community and how search funds align with Longreach's structuring capability.

Tom McGhie:

Welcome to the Searcher's Guide to Working with Debt. I'm Tom Mgee. This year, at the UTA Forum, I'll be hosting a panel discussion with a number of experienced finance professionals seeking their views on how debt providers navigate business turbulence. So for this season ahead of the UTA Forum, I wanted to take the opportunity to connect with each member of the panel and provide some background and context to who will be part of the group. Today we're speaking with Alex Miller from Longreach Credit Investors. Hi, lex, great to connect and maybe we could start with some of your career to date and when you joined Longreach.

Alex Miller:

Hi Tom, thanks for having me on today's session. Sure, I'll answer that first question. So I joined Longreach Credit Investors in March 2019. Prior to joining Longreach, I actually spent the previous nine years living and working in London. My final six years I worked for a life sciences healthcare focused private credit fund. Prior to moving to London in 2010, I grew up and lived in Adelaide and began my professional career at a mid-tier accountancy firm, which is where I received my CA qualification and sort of where things began.

Tom McGhie:

And so I guess you've kind of spent a bit of time in you know credit funds and ultimately you've tracked back to Australia. And why Longreach? In the sense of the journey of Longreach, I guess in 2019 it looked a little different than it does today.

Alex Miller:

Yeah, absolutely. So yeah, I moved back in late 2018. 2018 and, as I said, I'd spent the prior sort of six years in credit in london. So I came back wanting to find a role within either private credit or venture debt in australia and at that time, as you pointed out, there was, you know, far fewer operators in the austral Australian market than there is today. Longreach had launched their first fund in March 2018. And I ultimately joined Longreach in March 2019.

Alex Miller:

So, yeah, sort of came across Mitch Taylor, the founder of Longreach, in late 2018 and began discussions in that regard, and you know they were starting something new. They had a different you know, a different view to a number of other lenders in the market. I thought what they were beginning to build was really exciting. I was ultimately the third employee in the credit team, so it was really a chance for you know myself and the two other people to make a mark on the business and you know how we do things in the credit team. So it was really a chance for you know myself and the two other people to to make a mark on the business and you know how we do things in the australian market the inference is there.

Tom McGhie:

I can't help but resist, kind of pick up that point, right. So so tell me about long reach and those that may not have come across it before, which probably be pretty few. But how is it? How do you see yourselves as being different and you know what's the reality of that, in the way you guys, you know, have built the business?

Alex Miller:

Yeah, so we're. I mean, just for people that don't know we're you know we're an Australian-based private credit investment management firm. We focus on writing bespoke senior secured loans to Australian and New Zealand lower middle market SMEs. When we first launched the fund in 2018, on the back of, I suppose, the increasing regulation being imposed on major banks in Australia and the increasing, I suppose, retreat from major banks in funding those lower middle, I suppose retreat from major banks in funding those low middle market businesses the founders of Longreach identified a gap in the market and that's obviously what they went after. So originally, when we launched the fund, the focus was more on writing loan sizes probably $2 to $15 million and that was very successful. In the first couple of years 've obviously grown substantially larger. Now our sweet spot is probably more in that 10 to 40 million dollar check size space. But you know we we're a small team. We're a nimble team. We pride ourselves on the relationships that we, that we have created and that we hopefully will continue to create with you know, with the whole financial ecosystem in Australia. So that's everything from financial advisors, corporate advisors, private equity firms, other private credit funds and, importantly, the borrowers that we're looking to lend money to. So we take a very relationship-based approach with borrowers. We spend a lot of time structuring accounts, tailored and bespoke loan facilities for those businesses so that the loan package ultimately works for them but also works for us. It's very much, you know, it's not boilerplate. Every loan opportunity is crafted in its own unique way and again, we spend a lot of time building trusted relationships with the not only with the management teams the ceos and cfos and coos etc yeah, absolutely, and sort of in the way that translates to you know, the way you think about each deal obviously is quite different.

Tom McGhie:

In other words, you know, and certainly it's not a case of just take that cookie cutter approach and apply it to a different industry somewhere else. I mean, would you say that there's a specialty generally for some industries as opposed to others, or are you relatively agnostic in the way you approach sort of different industries?

Alex Miller:

Yeah. So just taking a step back, our mandate is sector agnostic, really outside to primary exclusions. So you won't see Longreach do any lending in the property space and you won't see us do any lending in the direct mining space, and that's predominantly to do with, I think, we don't have the core experience within the team in those two sectors, and it's also to do with us not wanting to be associated with property price risk or commodity risk. So they're the two sectors we and it's also to do with us not wanting to be associated with property price risk or commodity risk. So they're the two sectors we don't do All the other sectors.

Alex Miller:

We take each opportunity on its face value and assess each opportunity on its face value. I think that's the critical thing we do. But we have the benefit now of having recently closed our 71st senior loan transaction. We've nearly deployed $1.2 billion across those 70-odd senior loan opportunities. So we are starting to build up a really solid bench of expertise with a number of sectors which we're able to lean on as we do more and more transactions yeah, yeah, absolutely yeah.

Tom McGhie:

And so in you, in terms of sort of really thinking about the mandate you've talked about, deal size talked about, I suppose that, yeah, the debt side flavor of kind of what you don't do from a, from a equity perspective, I suppose, your investor perspective, is there sort of particular parameters that they like to see in the way that you're approaching things?

Alex Miller:

Oh look, I mean, I think, first and foremost, you know they want to see us make good investments right. So that comes back to our underlying. You know the rigorous due diligence we put all of our prospective borrowers through and choosing the right businesses so that you know the rigorous due diligence we put all of our prospective borrowers through and choosing the right businesses so that, you know, hopefully, touch wood, we avoid any loss of capital and we haven't had any loss of capital since we launched the fund in March 2018. And then I think you know the other thing clearly for investors is ensuring that they're getting the right risk return profile. So for you know, classic private credit, you know we're kind of in that lower mid-teens pricing range.

Tom McGhie:

Yep, yeah, perfect, perfect, and so I suppose that's so picking up on the point of the no loss of capital point, I guess we're going to talk a little bit about business turbulence and certainly the ETA forum, how that all plays through and lots of topics about that. I guess, if you sort of reflect on business turbulence and the concept of when things are not necessarily going to plan common sort of solutions, in the way that maybe you see things getting back on track through those processes that you know specific in terms of the way Longreach thinks about them or even just the deals themselves, yeah, I think this comes back to a lot of my comments around our approach and it's very relationship driven.

Alex Miller:

So we spend as a firm, we spend a lot of time in close consultation with the management team and the shareholders of the company. I suppose from the outset we try to have a deep understanding of the bor partner during due diligence and execution and then you don't see Longreach or the investment team in the year or years thereafter. We remain very close to the company during the entire loan term. You typically only see a couple of individuals from Longreach. It's probably very different to a bank where you can potentially see a number of different relationship managers over the term of a loan.

Alex Miller:

And I suppose, coming back to getting things back on track at Longreach, obviously we have things like monthly reporting in place, so we like to think we're good at identifying stress before there's distress. We've also purposely hired a number of the team out of insolvency and restructuring such that they're very good at being able to identify those early warning signs. Those early warning signs, I suppose, go further and turn out to be problematic for the company. We're able to obviously utilise those skill sets in helping support the company get their business back on track and obviously that can involve, of course that can involve things like amendments to the existing loan facility, long reach providing more funding. Long reach working in unison with the existing shareholder base to come up with solutions. But yeah, I think, as we always say, that timely and proactive delivery of information by a borrower is always the best medicine. It allows long reach the best chance to work in collaboration with that borrower in trying to solve the problem before it becomes a really big problem.

Tom McGhie:

So I think that's yeah, and look, probably as an extension to that, probably from my own experience working with you guys, right, like we do, just emphasizing the point you made before, we just spent a lot of time up front working on even the management KPIs or the key sort of indicators that are actually going to be included in the reporting frameworks to identify those sorts of things which should be very aligned, really, to what the board might be thinking about or the business owner should be focused on in terms of those industries and those things that they run the business right. So so, yeah, like just underscoring that point, that it's not like that just comes out of the woodwork as the deal progresses, yeah, it's something that's very deliberate.

Alex Miller:

Yeah, yeah, and look, it's a good point. One other point like our investment committee, you know, very early in due diligence process, our investment committee, you know, very early in the diligence process, our investment committee, will always meet the key stakeholders from the borrower. And that is really because obviously the investment team usually by that point has had many meetings and knows the business fairly well, but the IC doesn't. So it's probably a part of a long range process that I don't think is part of all other funds processes where we have our investment committee meet early in the process. And that's really our IC's chance to look the CEO and the CFO in the face and understand their business, understand their culture, because ultimately these loans aren't just about the financials, it's about the people that sit behind the business that ultimately are the ones that need to make it happen.

Tom McGhie:

Yeah, absolutely and fundamentally solve the problems. Yeah, yeah, the ETA community more broadly. How did you guys first hear about it as a sort of as a community, as a group, and how did you get involved?

Alex Miller:

Yeah. So, if I'm honest, I hadn't heard about the concept of search funds until probably three years ago. I originally heard about the ETA community and the concept of search funds via Pete Seligman I think. Pete and I were discussing a separate opportunity from a private credit perspective, not to do with search, and he took me through you know his involvement in search at that point so that I suppose, for me personally, at long reach, I've been investing more and more time in the space over the last two or three years, of course alongside you as well, tom. So over the past, you know, a years, we've been seeing more and more opportunities in the space. We closed our first deal probably a year and a half ago in the space, which was fantastic.

Alex Miller:

Obviously, search funds they're typically targeted businesses that are already performing well, have stable recurring cash flows. Often it's businesses looking for succession and ways to release equity. So those sort of characteristics of stable recurring contracted cash flows are the types of characteristics that are well aligned to the types of businesses Longreach looks to fund. And I think when you add on the additional rigor that that comes with, you know the genuine level of experience, board and governance structures that are put in place around those businesses. They can align fairly well with the types of businesses that we look to fund. Yeah, perfect.

Tom McGhie:

Yeah, and there's certainly yeah as a landscape of all. I certainly talk about this with people. It's not as if what is defined by sort of the acronym of ETA it's not like that's a new thing. You know, we've been doing M&A activity in the country for a long time before we started calling it ETA. But in essence, I guess the frameworks that have come certainly from Pete's work and Wayfinder's work and others sort of you know, in terms of the thought leaders in the search community specifically, have certainly started to be able to be applied more broadly and I think it's helping generally in the context of, you know, defining sort of approaches and ways of doing things which people, particularly lenders, are getting more comfortable about. Right, and so, yeah, that's been very helpful. The eta forum not far away now I assume you're going to be there, you're going to be on the panel with us, but you'll be hanging around for the for a couple of days. So what, what else are you looking forward to about that this year?

Alex Miller:

yeah, so I think it's my second forum. I missed last year, unfortunately, but look, I'm excited about catching up with familiar spaces sorry, familiar faces in the space and, of course, meeting, you know, new, hungry, eager entrepreneurs beginning their journey, looking to acquire australian or new zealand businesses. So I think that's probably the most exciting part is listening to the various panel sessions and hearing them speak about their experiences to date. And yeah, I mean, hopefully I can share my experiences personally and Longreach's experiences over the last six years as to how we provide a different funding option to to those businesses yeah, absolutely.

Tom McGhie:

Yep, well, we're looking forward to it as well, and I mean it's not far away, as I said. So, yeah, look forward to seeing you in sydney, which is not far for you to go, but everybody else, we've got to get on a plane for a change.

Alex Miller:

So there you go. Yeah, no, thank you very much for having me, tom, and looking forward to the event next week perfect.

Tom McGhie:

Thanks, alex, appreciate your time, cheers.

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