Icertis has quietly raised $75 million in a debt financing round. The information became available earlier this week in an SEC filing. The company indicated that it came from a “convertible term loan and underlying securities”. According to an article in the Times News Network, Rajat Bahri, CFO Icertis, wrote, “We have a strong capital position and view this financing as an opportunity to ensure maximum flexibility for our business as we continue to drive the category forward in the future.”
Icertis has been aggressively expanding in the Contract Lifecycle Management market over the last few months, in part thanks to the investment by SAP earlier this year. At that time, Icertis did not disclose how much finance it raised. The last funding round was in March 2021, when it raised $80 million in a Series B funding round led by B capital.
It is an interesting time to raise debt financing with climbing interest rates. There are no details about the terms of the investment. There are some interesting questions about why Icertis is raising such a large sum. One obvious move is that it is raising the money to make an acquisition. However, the SEC Filing indicates that the finance raised is not directly linked to “a business combination transaction, such as a merger, acquisition or exchange offer.”
However, as this is debt financing, it does mean that should Icertis wish to make an acquisition, they now have a facility it can leverage. As Bahri indicates, the funding could be used for anything. It might be to continue investing in growth or a short-term measure to stabilise cash flow. Debt finance is also seen as cheaper than equity finance, as lenders often expect lower returns than equity investors. For Icertis, financing the debt is also tax deductible making it even more efficient. Importantly, it also means that the company and existing shareholders retain their existing stakes in the business.
Enterprise Times: What does this mean
There have been fewer instances of debt financing in recent months, especially in private companies. Bahri, who only joined the company a couple of months ago, is making an impact quickly. It is a bold move for the new CFO and will give flexibility in the coming months. There is no indication of who is providing the debt financing, only that it is a single organisation.
The move could mean that Icertis continues its current strategy, developing vertical industry contract lifecycle management solutions. Though it may give Deanna Lanier, its newly appointed Chief Strategy Officer, greater flexibility as she settles into the role. It recently launched one for banking, insurance and financial services. Whatever is next, Icertis has strengthened its financial position, possibly before interest rates skyrocket and at a time of general economic turmoil.
Does this also indicate a shift for financial institutions to offer direct debt financing to enterprises, rather than financing private equity firms? It was a recent topic in Motley Fool that highlighted the $700 million write offs by the Bank of America, Credit Suisse and Goldman Sachs. Will we see a return to debt financing for profitable organisations looking to accelerate growth?
