Regulatory Proposals Impact Business Development Companies
Abstract
A few years ago, banks originated most of the commercial loans for the middle-market. Now, nonbank institutions, such as business development companies (BDCs), are taking on a greater share of the lending. Opportunity rises for business development companies, Three recent proposals from the US Securities and Exchange Commission (SEC) could change the private credit landscape. These proposals are designed to streamline and enhance the regulatory framework for business development companies (BDCs) and add definitions to existing investment company-specific rules. With changes in BDC regulations on the horizon, firms that manage BDCs should prepare for increasing demand from private investors. Private capital has long been a leading conduit for financing in middle-market lending. Business development companies (BDCs), a form of closed-end funds, have played a crucial role for firms dependent on this funding. Recently, the Securities and Exchange Commission (SEC) signaled that rules governing certain deal structures may be refreshed “to streamline and enhance the regulatory framework for fund-of-funds arrangements.” While the new proposed rules will affect all registered funds, from mutual funds to unit investment trusts, alternative investment advisers that manage BDCs will be especially interested. Private equity firms provide value through business development companies, firms offer BDCs to accredited and institutional investors as an additional diversification vehicle from public equity and debt markets. There are three types of funds: Traded, which raises funds through an IPO and are listed on a national exchange. Non-traded, which continuously offers shares up to a maximum amount and typically makes investments as shares are sold. Private, which offers shares in a private offering to accredited investors and generally makes capital calls when investments are found. BDCs bridge middle-market financing gap, Private equity (PE) firms offer private BDCs to accredited and institutional investors as an additional diversification vehicle from public equity and debt markets. PE firms also manage public BDCs, which appeal to retail investors looking for additional yield opportunities. These investment companies are regulated under the 1940 Act and were created in 1980 to bridge the financing gap faced by small- and medium-sized businesses in securing funding from banks. The gap expanded after the financial crisis as banks de-levered their balance sheets. PE firms and others stepped in by forming BDCs to extend critical credit to businesses.
References : https://www2.deloitte.com/us/en/pages/financial-services/articles/businessdevelopment-companies.html , https://www2.deloitte.com/us/en/pages/financialservices/articles/future-for-business-development-companies.html ,
https://www2.deloitte.com/us/en/pages/financial-services/articles/regulatory-proposalsimpact-business-development-companies.html# .
Summary
Business Development is the creation of long-term value for an organization for customers, markets, and relationships (Scott Pollack from Forbes, 2012). Can be simplified: All ideas, initiatives, activities to enhance the overall business. Business
Development activities extend across different departments: Sales, Marketing, Project Management, Product Management, Vendor Management, Partnership, and costsaving efforts. Preface Company XYZ has a product or service that already well-known and successful in one region .As time goes by, their Business Development (BD) team assesses further expansion potential. They conduct a benchmarking and do a lot of research to some potential region. They also begin to define which region has the biggest potential and what are the action plans. After all research and studies, BD team concluded to expand the business to Malaysia. Sample Case of Business Development Linkage Between Divisions : Sales, will focus on particular market or particular clients, often for a targeted revenue number. Marketing, involves promotion and advertising aimed towards the successful sale of products to end-customers. Strategic Initiatives/ Partnership, will define the strategy to enter a new market, will it be worth going solo by clearing all required formalities, Assisted by Legal and Finance team, BD team weighs all of the pros and cons of the available options and selects the one that best serves the business. Project Management / Business Planning, Does the business expansion require new facility in the new market, or will all the products be manufactured in the base country and then imported into the targeted market? Such decision are finalized by the BD team based on their cost- and time-related assessments. Then, the project management/implementation teams swings into action to work towards the desired goal. Product Management, Regulatory standards and market requirements vary across countries. Vendor Management , Will the new business need external vendors? For example, will shipping of a product need a dedicated courier service? Will the firm partner with any established retail chain for retail sales? What are the costs associated with these engagements? The BD team works through these questions. Negotiations, Networking, and Lobbying, A few business initiatives may need expertise in soft skills. Cost Savings, BD is not just about increasing sales, products, and market reach. The BD scenario discussed above is specific to a business expansion plan, whose impact can be felt by almost every unit of the business. There can be similar BD objectives, such as development of a new business line, new sales channel development, new product development, new partnership in existing / new marketing, and even merger / acquisition decisions. Think about Gojek and their acquisition decisions (Halodoc, Mapan, Midtrans, Kartuku, etc). – Personal Branding : Use of Professional Social Media – LinkedIn, Focus on your strength, Credibility. Networking : Future possibilities & Career enrichment.