22 corporate finance
Where should entrepreneurs be seeking capital?
As we emerge from what we hope and believe to be the worst of the financial crisis, we are beginning to see providers of capital starting to establish the rules for the 'new world', says the southern region corporate finance team at RSM Tenon
There are a number of themes that dominate:
• There is no more cheap debt in the middle market. Debt for small and medium-sized businesses is hard to come by for all but the highest quality of businesses/opportunities and the proposition needs to be put carefully to the banks to get their interest. Expect arrangement fees and lending margins to be meaningful.
David Copley
• Even for suitable propositions there is less debt on offer. Despite the banks increasing need to lend (to make profit), the level of debt that can be obtained on a given transaction is noticeably lower than it was prior to 2008. We empathise with the banks and the new regulatory environment. It is not their fault that the risks and costs of lending to mid-market enterprises in highly-leveraged situations outweigh the rewards.
• We are seeing a number of AIM transactions completing (and in the pipeline) which makes us optimistic that AIM is coming back for the right transactions (both domestic and international) including cash shell reverse take-overs. The appetite for AIM is creating price competition for professional services.
Rebecca Guerin
• Private equity is alive. The competition for quality is intense, driving prices for those assets upwards. PE houses prefer to risk over paying for quality rather than purchasing lower quality businesses cheaply. However, it remains difficult for private equity to outbid well-funded corporates particularly where synergies can drive value.
• We are also seeing creative solutions for companies and businesses attempting to repair damaged balance sheets, driving a number of transactions requiring specialist insolvency know-how.
• Surprisingly perhaps, mezzanine funds appear to be re-emerging at more competitive rates as a potential funding gap solution for restructurings.
Nick Williams
• Asset-based lending remains a competitive arena, and while deals may be more expensive than in the past this can often be the quickest and easiest route where there are assets that support it.
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• International deals are increasing, particularly inward investment from the US.
There is a new generation of equity capital providers emerging. These could be angel group investors that are usually one or two high-net-worth individuals looking for a business to back, or (at the other end of the scale) more sophisticated networks who sign up to deals on a case-by-case basis. These can be very powerful, particularly in the sub £1 million transaction space which has always been difficult.
Some recent examples of transactions which have completed in which the local corporate finance teams at RSM Tenon have been involved are as follows:
• Pre IPO funding of MaxWest, April 2011
• Flotation of Mission Capital/Quindell, May 2011
• Private equity transactions for Sovereign Capital, LDC and Risk Capital Partners, May 2011
• Pre-pack of local company in the defence sector (confidential), May 2011
• Financial and commercial due diligence on the buyback of a minority interest in Storrington Industries, funded by HSBC, August 2010
• The rescue deal of Car Crash Line, February 2010.
”This experience places the corporate finance team at RSM Tenon very well to be able to give current advice to companies and entrepreneurs considering their next move,” says Peter Vandervelde, national head of transaction services. ”We are always pleased to discuss the advantages, challenges and issues concerning each of these various funding routes with people who are weighing up these alternatives.
”We regularly advise on transactions between £1m and £100m. Our expertise has been gained from advising on transactions across a wide spectrum of industry sectors and we have a breadth of experience in advising on local, national and international transactions.”
Details for RSM Tenon offices
Reading: 0118-9530350 Basingstoke: 01256-312312 Marlow: 01628-478100
THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2011 Peter Vandervelde Steve Brown Neil Gray
Darren Miller
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