funding your business 33 M&A finance to increase in 2015
The Loan Market Association has undertaken a survey of its members’ views on the outlook for the loan market in 2015. John Chater of Penningtons Manches LLP considers the results
The findings can broadly be summarised as renewed (or continuing – depending on your view) optimism in the market, with the best opportunities arising from M&A and with non- bank finance forecast to increase. Although the survey relates to the syndicated loan market, the responses to three key questions may be mirrored in the bilateral market.
The most interesting question the survey asked was: Next year (meaning 2015), where do you think the best opportunities will lie in the loan market? The responses reveal it is anticipated that the best opportunities will be financing corporate M&A. Of the respondents, 33.5% predicted corporate M&A will be the best opportunity. This marks a key change from the
2014 survey, where refinancings were predicted to be the best opportunities, and is reflected in the steadily-increasing amount of corporate M&A we are seeing, with lending opportunities rising as a result. It is worth noting there is still likely to be a fairly large number of corporates who will want to refinance in 2015.
Another key question the survey asked was: Which lending ’source’ do you think will demonstrate the greatest growth in real estate lending in 2015? Non-bank lending is expected to show the greatest growth this year. Of the respondents, 32.4% predict debt funds will be the source of the greatest growth, while others predict the source of the greatest growth will be banks (21.0%), pension funds (19.9%), insurers (15.5%),
sovereign wealth funds (8.2%) and other sources (3.0%).
The findings perhaps reflect increased competition and diversification in the real estate lending market, as well as renewed optimism in property as an investment. In our opinion, the investment arms of insurance companies may well play a vital role in the commercial real estate sector, as they may look to invest more and more in what could
The brave new world of new finance
The Bank of England’s ’Trends in Lending’ report October 2014, has identified that lending to UK businesses is in a state of stagnation, writes Adam Wilson, partner, Southampton office, Wilkins Kennedy
The report identifies that the net flow of lending to UK businesses by all UK resident banks and building societies over the six months to October 2014 was, on average, zero.
The report continued that “contacts of the Bank’s network of agents had continued to report that many SMEs preferred to repay debt“.
However, there is a bigger picture emerging in terms of sources of finance. The Government has been working hard to facilitate the creation of greater funding diversity and availability to small and medium-sized businesses. The new British Business Bank, launched in November 2014, already appears to be hitting the ground running, with £829 million of new lending to smaller business having been supported, with a commitment to unlock a further £10 billion over the next five years.
So where is the diversity and availability in funding coming from?
While no means exhaustive, there is a growing list of potential resources.
Equity funding from business angels or venture capitalists, according to research specialist BDRC Continental, is only used by 1% of SMEs. Greater accessibility is now being addressed by government, especially in the sub-£2m level which is generally recognised as a difficult band.
According to the Asset Based Finance Association (ABFA), asset-based finance is growing healthily. ABFA claim that 80% of asset-based finance is invoice finance (lending against the value of invoices issued), with the remaining 20% accounted for by asset-based lending (where money is lent secured by assets owned by the business, including inventory, property and machinery, as well as more intangible assets, such as brands). ABFA reported in December 2014 that the combined amount of invoice finance and asset-based lending provided to
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – FEBRUARY 2015
businesses in the UK had increased by 12% in the past year.
Crowdfunding has also been receiving growing attention in recent times. It is raising money directly from a large number of people all putting in what can be relatively small amounts of money. A business or idea is showcased on a crowdfunding website, with potentially millions of ’Dragons’ available to back the idea or venture with their own cash. The sums raised are not necessarily always small either. Film maker Spike Lee is reported to have raised $1.25m through the crowdfunding website Kickstarter to make a new film.
Traditional lending itself has been receiving an overhaul. Whilst the traditional high street banks may have contracted in the lending market, so the space has been occupied by new players. New ’challenger banks’ have come to the fore, both as a high street presence and as niche business lending
be viewed as reasonably safe medium/long-term investments with the potential for higher yields.
A similar question in the survey was: In five years’ time what will be the change in market share in volume terms of non-bank finance in the loan market? Most respondents predict there will be an increase in non-bank finance, with 52.8% predicting a moderate increase and 32.7% predicting a significant increase. The LMA points out that this reflects the regulatory drive to encourage the provision of credit from sources outside the banking market. However, we expect bank finance to continue to play a significant and vital role.
Details: John Chater 0118-9822640
john.chater@
penningtons.co.uk www.penningtons.co.uk
specialists. In addition, investment managers have successfully entered the lending market, particularly in the area of longer-term lending to medium-sized businesses.
With so much choice available it is important, not only to do one’s own homework, but also to get solid independent advice and as never before to construct very well built business plans.
The prospects for growth this year are looking positive and the funding arena looks much brighter than in recent times.
When it comes to money, even in 2015 two old adages remain as true as ever: “look after the pennies and the pounds will look after themselves“ and “cash is king“. From everyone at Wilkins Kennedy, we wish you a prosperous and exciting 2015.
Details: Adam Wilson 023-8024-7070
adam.wilson@wilkinskennedy.com www.wilkinkskennedy.com
www.businessmag.co.uk
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