The Situation
An established and growing information technology service provider (the “Company”) was looking to optimize the operating systems used for its core operations. The Company offers a range of managed infrastructure, mainframe and cloud services to mid-tier and large enterprises. It was exploring the prospect of financing a major enterprise license software upgrade in order to provide its clients with the best IT workload-management capabilities in mainframe computing.
The Company is run by an experienced management team with a strong track record. In recent years, the Company has generated strong revenue and EBITDA growth through a combination of organic development and acquisitions. The Company was looking for $12 million in lease financing for the software upgrade. While this was ‘soft collateral’, it nevertheless would support a large, growing and structural business line. Atalaya was introduced to the opportunity through an originator with whom Atalaya had worked closely on other transactions.
The Solution
In August 2019, Atalaya provided lease financing to enable the Company to purchase the new software license without a sizable up-front payment. The strong credit profile of the business was the primary driver to overcome the potential risk inherent in software serving as the primary collateral.
Specifically, while the software lacked conventional ‘liquidation value’, Atalaya had experience financing software and was able to get up to speed quickly in order to execute on the Company’s accelerated timeline. Factors which drove Atalaya’s underwriting included: (i) the attractiveness of the business model - the majority of the Company’s revenues are contracted and recurring, and (ii) growth tailwinds. The IT / managed services industry is expected to grow at a compounded annual growth rate of 13% through 2022, on the back of increasing demand for consumer-facing and back-office applications that help businesses run more efficiently and protect data.
The Result
Atalaya's lease financing enabled the business to acquire the software to expand its client base and scope of services. By financing the purchase, the Company preserved upfront cash, enabling it to further invest in its core operations and continue to pay down debt from past acquisitions. By moving quickly to review and fund the transaction (within a matter of a few weeks from start to finish), Atalaya enabled the Company to work seamlessly with the software vendor and meet the timing needs of its business.
