funding trends - breakfast seminar 14 march 2012
TRANSCRIPT
Professional Briefing –“Wot, no bank funding!”
A review of funding (and transaction) trends and implications for the year ahead
14 March 2012
Administration
Admin
Timetable
Presenters…
Presentations covering…
• Lessons for debt, equity and grant raising from 2011
• Expectations and market developments for 2012
• Implications for SMEs
– Legal
– How to succeed
Lessons (and trends) in debt funding
Mark Greaves,
Corporate Finance Partner, Francis Clark LLP
Key themes from WMN Deals Review - 2011
• Small recovery in reported Deals
200
300
400
500
600
700
800
0
5
10
15
20
25
30
35
40
45
50
Oct-06 Sep-07 Sep-08 Sep-09 Sep-10
Number of deals per month (3 month rolling average)
WMN Deals Review(left hand scale)
CorpFin deal data (right hand scale)
Sep-11
Key themes from WMN Deals Review - 2011
• Increase wholly attributed to Sales and Acquisitions
• Decrease in MBOs, equity finance etc
• Significant decline in equity deals (25 v 36)
• Increase in JV (renewable projects)
• Large number of aborted deals
Banks…
• Increase in bank funded deals
• Still well below deal volumes in period 2006 to 2008
• Very few MBOs/ MBIs funded purely from debt
2011 2010 2009 2008 2007 2006
Acquisitions 43 35 32 61 60 51
MBO/ MBI 6 8 10 12 15 20
JV/Merger 4 2 - - 1 1
Raise equity 3 8 1 1 3 2
Other 3 4 2 4 2 11
59 57 45 78 81 85
Deals funded by main clearing banks
Banks: National perspective
• “Banks miss Merlin target for SME loans”
– Net lending to businesses by Britain’s five main banks fell £9.6bn last year
– Over £1bn shortfall to small businesses (target = £76bn; actual = £74.9bn)
– “regulatory changes and higher wholesale costs had constrained the ability to banks to lend” (CBI)
– Demand v Supply
Debt finance – Government help?
• “Negotiated deals [on lending levels] cannot be a permanent solution in a market economy” –George Osborne
• Government will seek to lower cost
– National Loan Guarantee Scheme
– £20bn – to cut interest rates by 1%
• Government to increase competition?
– Business Finance Partnership (£1bn +)
Interest rates
Cashflow funding
• Match concept
• Profit stream historics (5 to 7 years)
• EBITDA altered focus (depc’n v capex)
• PGs (min ++)
• Differential between main clearing banks
• Sensitivities
• Costs
• Vendor subordination
New players
• New Banks and mezzanine funders:
– Co-op
– Santander
– Octopus
– Project Rainbow
– Handelsbanken
– Centric
• Second tier HP
Debt: Practical points
• Banks no longer funding “equity propositions”
• Credit committee versus front line managers
• Approval process – try, try and try again
• ABL versus others (esp. o/d)
• Covenants and enforceability
• Own versus new clients
• Specific bank appetite – renewables, property, etc
• Look at proposal from their side!
Grants –‘last days of the free money?’
David Bullen,
Corporate Finance Senior Associate, Francis Clark LLP
Background and themes
• Background– UK Government has no funds and/or appetite to stimulate
growth through new money..
– Convergence funding for Cornwall & Isles of Scilly ends running from 2007 to 2013
• Themes?– Announcements (followed by delays)
– Reassignment/ Recycling of funds
– ‘End dates’
– Competition for Funds e.g., PWGF 3rd round
“New Funds”
• Regional Growth Fund and Assisted Asset Purchase Scheme
– Grants of up to £500k
– Match with bank loans
– Investment in capital assets and job creation
– RBS/ Nat West and HSBC
“New Funds”
• Business Investment in Growth (“BIG”) Voucher Scheme
– Grants of up to £50k
– Match funding
– “step change” expenditure
– High growth businesses
– Convergence
Old favourites…
• Grant for Business Investment
– Up to 50% of capital costs or ‘capitalised salaries’
– Innovative knowledge based projects
– GVA
– Creating skilled employment
– Convergence
A bit like GBI..
• Cornwall and Isles of Scilly LEP application to RGF
– “GBI style grants for premises and equipment”
– Superfast Broadband opportunities
– Infrastructure projects in marine, mineral, renewable energy and aerospace industries
A bit like RDPE…
• Rural Economy Grant (REG)
– £60m scheme (new money?)
– Grants of b/w £25k and c £1m
– ‘game changing’ performance
– Farm, forestry, tourism, agri-food businesses
– Convergence??
Grant raising
• Business case to the fore
• Match grant with business model/ need
• Dialogue
• Three questions
– Eligibility
– Quantum
– Issues
• Patience/ timetable
A review of funding trends and implications for the year ahead
GAVIN POOLE, partner, corporate team
14th March 2012
CORPORATE EXPERTISE
• Service to national clients
• Disposals, acquisitions, joint ventures, buyouts, debt
restructuring, finance raising transactions
• 71 corporate transactions in 2011 and a range of other
advisory matters
• 15 senior transactional lawyers
• Partner led service
Corporate/M&A: South West
Devon & Cornwall
Legal observations
• Pressures
• Finance
• Resource (inc time)
• Sector activity
• Charities
• Highly regulated (eg care homes)
• Big Society
• Management buyouts
• Sharp decline in larger deals
• Reduction in deal values
• More exits by private equity
• Increase in use of debt finance
• Foreign investment
• Cash
• Reserves
• Shortage
Legal implications
• Continued consolidation
• For larger businesses, pressures to keep up profits drive restructurings
• Lower deal values point to a number of potential factors including:
• Drop in business values?
• Less funding available?
• Increase in exits point to a number of potential factors including:
• Cashing in?
• Lack of confidence?
• Cash availability
• New entrants/ways of raising money
A new team event: Finance
• Structures in a different landscape
• Reward
• Reduced upfront payments
• Loan payments
• Deferred consideration
• Consideration in non-cash elements
• Put and call options
• Security
• Difficult to predict mix of debt and equity
• Grant funding
• Prime/sub-prime competition
• Risk
• Co-investment (risk sharing)
• Performance based deferred consideration
• Joint ventures
• Options (planned/staged transfers)
• and many more…
Old and new sources of finance
• Old
• Debt
• Equity
• Fools, friends and family
• The London Stock Exchange
• Main exchange• 2010: 89 new admissions. £10bn raised
• 2011: 76 new admissions. £12.9bn raised
• AIM• 2010: 43 new admissions. £6bn raised
• 2011: 45 new admissions. £3.8bn raised
• New
• Joe Public (phase II)• Crowd
• Peer-to-peer
• Other structures/other uses
• Co-ventures with Big Society stakeholders
• New entrants• Banks, grant funding
Next 9 months
• Launch of charitable incorporated organisations (“early” 2012)
• Guidance on corporate environmental impact (during 2012)
• Changes in qualifying conditions for EIS/VCT schemes (April 2012)
• Olympic Games
• Changes in registration of security (October 2012)
• Procedural
• Clarification
Crystal ball
• World economy
• Convergence funding coming to a close
• Rise in complexity of structures?
• Rise in activity expected
• Confidence…due diligence
Finance Raising in 2012… a focus on equity?
Mark Greaves,
Corporate Finance Partner, Francis Clark
Finance Raising
• Debt
• Grant
• Equity
– “Although the number of equity deals decreased… Downing, Eden, Octopus and Piper active… expect the number of equity backed deals to increase substantially into 2012.” – WMN Deals Review
Friends, family
and …
Business Angels
Venture Capital
Private Equity
Business Angels
• Crowdcube/Kickstarter
• SWAIN/Beer and partners
• South West Cleantech Co-Investment Fund
• Angel Co-Fund
• EIS/SEIS
The Angel CoFund
• Initial Equity Investments
• £100k to £1m
• Alongside syndicates of Business Angels
• Upper limit of 49% of any investment round
• No direct applications by SME
Seed Enterprise Investment Scheme
• Investor and invest up to £100k
• Staff < 26, Assets < £200,001
• New Business
• Tax reducer equal to 50% of investment
• Proceeds of any gain reinvested into a SEIS exempt from CGT (fiscal year 2012/13)
• Details to follow…
Equity providers
• Relevant funds :– Altitude (Bath 2012)– Westbridge (North Devon 2012)– Chrysalis– Broadlake– Eden– Octopus– Matrix
• Business Growth Fund• Improve debt proposition
Business Growth Fund
• Commercial Fund
• Bank financed
• Investments of b/w £2m and £10m
• Minority stakes
• Relaxed on sectors – but no property or financial services
Doing the equity deal
• Know your market– Business Angels
– Venture Capital
– Private Equity
• Understand ‘Risk v Reward’
• Know ‘enhancements’ – EIS etc
• Understand valuation and Investor Return
• Sector and Geographical specialisms
• Do not forget about Debt and Grant…
Equity deals
• Piper/Celtic
• BGF proposal
• Altitude/technology company
Conclusion
• There are funds?
• Missing ingredients?
– Confidence
– ‘The right propositions’
Conclusion
• Strategy for 2012
– Creative solutions
– Know the market place
– Look at the proposition from the other side
– Understand key requirements of
• Credit committees
• Investors etc
• Vendors
Future events/ presentations
Next professional briefing
• Manufacturing UK – 26 April, Lowin House
Finance in Cornwall 2012 – 15 May, Lighthouse Cinema, Newquay
Now in its fifth year; with a slightly revised format. VIP speaker (TBC). More information to follow.
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