Australian businesses need flexible funding solutions to turbocharge their growth, but finding the right partner can be challenging.
SomnoMed CEO Neil Verdal-Austin explains how the company turned to private credit fund Epsilon Direct Lending to help fund his company’s digital transformation strategy and market expansion – when big banks didn’t get on board.
From our humble beginnings in Sydney back in 2004, SomnoMed has grown to be the world’s largest supplier of oral sleep apnea devices. Today, we operate in 28 countries, but the thing that’s been key to our global expansion and digital transformation in recent times has been private funding.
To become a market leader in oral device therapy for Obstructive Sleep Apnea (OSA) we’ve conducted ongoing clinical research and invested in the business through continuous innovation and instituting medical manufacturing standards to create a product that has made a difference to patients across the globe.
A new strategy to take our company digital
Before the pandemic hit in 2019, I attended a range of sleep conferences across Europe and the US. The problem I kept hearing over and over again was the growing demand from patients, sleep physicians and other providers for new technologies that could help solve low compliance rates.
We knew that oral sleep apnea devices work, but the problem was that we had no way of knowing how often patients wore the devices once they left the clinic. It was clear to me that we needed to update our devices – we needed to harness digital technology to solve this problem.
Soon we had a strategy in place – but we needed to raise capital. Raising capital in equity markets was not an option – during the pandemic, it was impossible to issue more shares, so we started looking at other funding alternatives. We decided that we didn’t want to use private equity, which would allow another party to take a stake in SomnoMed and dilute the management’s ownership of the company as we expanded.
Raising the cash
The next step for many companies is to turn to their bank. We had an existing long-standing relationship with an international bank, but what I found was that bank did not understand our business, goals and export focus – our largest potential market is the US.
My feeling was that funding would have been more readily offered had we been seeking to invest in Australia. But it wasn’t. SomnoMed’s focus is truly global, with the rising incidence of sleep apnea being a major global health challenge, and we operate in a global market, something our bank at the time failed to see.
Importantly, I felt that SomnoMed was being sold a product by the bank – we were not being heard as to our needs and where our asset collateral asset base was domiciled, despite our strong business model and strong balance sheet exporting medical devices around the world from our state-of-the-art production plant in the Philippines.
SomnoMed had posted record quarterly revenue of $21.3 million in the fourth quarter alone of the 2021-22 financial year, a 32% increase in constant currency versus the previous corresponding period. Over the full year, unaudited revenue of $72.6 million rose 17% in constant currency terms versus the year earlier period and that was above an earlier guidance of 15% growth for 2021-22.
So, armed with a strong balance sheet, we looked at more feasible funding alternatives and, through that, turned to private credit where a bespoke financing solution for our company was obtained.
We were impressed with our lender Epsilon Direct Lending which immediately understood our growth requirements. Epsilon took the time to understand our financial needs and our desire to expand in the US and Europe and the plan to develop a revolutionary new product that has the potential to significantly improve patients’ lives. I’d found a team that had the integrity we were looking for – and before we knew it, we had a nimble funding solution for $16 million, which, importantly, didn’t dilute the management team’s ownership of the company.
My tips to other business seeking private credit is:
- Keep an open mind and investigate funding options beyond banks. Ask other businesses about their experiences with banks and other lending institutions in seeking funding and getting recommendations on funding options.
- Be prepared for the legal costs and due diligence. It is time consuming and can be costly, but the reward is a obtaining the financing solution you desire.
- Find a partner that will listen to you – every lender will talk about the suite of products available from their brochure, but there is no such thing as an off-the-shelf solution.
Today we’re executing our growth strategy, transforming patients’ lives and generating the cash we need to repay the loan.
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