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dealmaking roundtable ... continued from previous page


niche business owner happy to earn a healthy income from just a few days weekly work, despite being aware that the company could achieve much more.


Rolfe: “Lifestyle businesses often have the most potential for buyers, as long as there is a capable team to take that business on, since frequently the business relies on the entrepreneurial individual.”


New funding opportunities for deals


Arnold: “It’s fantastic to be able to give clients a suite of funding recommendations beyond the usual options. The challenge is to know the good ones from the bad ones, and not to give such a wide choice that the client is bamboozled by the variety.”


Rolfe: “By nature, new funding entrants are hungrier and more nimble because they have smaller teams, which they are building. They have opened the market up to more choice and have fewer layers to negotiate in getting to term-sheets. Alternative lenders are very much on our list to consider.”


David Rolfe


Thorburn: “The landscape has changed a lot and we now tend to deal with alternative lenders more than the ‘high street’. Most people come to us after they have tried to get funding from those traditional sources, which 10 years ago would have had around 95% of the lending market.”


He highlighted the rise of challenger banks, crowd-funding, asset-based and credit funding and revealed that London now also has more than 200 niche-lending banks, which most people wouldn’t know about because they have no branch networks or widespread marketing. “This all gives borrowers more options and puts pressure on the big guys to sharpen up.”


The need for informed funding advice


“Could more choice mean more confusion?” Murray asked.


Thorburn claimed that many clients did not need more funding but simply more informed advice about the sorts of funding available. Most large corporates would have knowledgeable in-house teams, but smaller companies often relied on their banks or accountants for advice.


Greg Norman


Anstey: “We are not seeing deals fall over for funding reasons any more. A few years ago the choices were much narrower for companies.” BCMS is making concerted efforts to map this new market of discretionary rather than tick-box funders, to understand it better and where appropriate to make introductions.


Roberts: “Compared to pre and post- recession periods, bank lending appetite is now very well balanced between encouraging growth while at the same time managing risk.” Improved credit analysis and the building of knowledge of the customer’s business that proceeds the issue of indicative term-sheets gives clients more confidence that “... following a clean due-diligence exercise, we will deliver on those terms.”


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Roberts suggested that many SME bracket (£2 million-£25m turnover) deals that didn’t progress or failed to complete, can often be attributed to the lack of a suitable corporate finance adviser. “Too often the management team or the company’s accountant, seek to navigate through the deal process, without the right level of support or transaction knowledge that a corporate finance adviser can provide.”


Arnold said funding advisers had a duty to know and explain all the options to clients but it was easy for advisers “to gravitate to those lenders that they know best, which means that a client might be missing out on the best solution.”


Roberts agreed that finding the right funding was vital. He pointed out that timing and preparation could also be key factors in a deal. Traditional banks might loan funds but be delayed fully assessing


business plans and financial accounts, whereas alternative online peer-to-peer lenders might agree a loan quicker, but at a limited debt quantum and much higher cost to the borrower.


Norman felt BGF’s funding from the ‘high street’ banks helped client confidence and awareness of “where the money is coming from”.


Arnold added that preparation of suitable financial data and business plans was something too few companies had ready when required within the deal process.


Thorburn noted that while alternative options such as crowdfunding had “revolutionised funding in general and particularly in the zero to £1m lending space” there were still funding deficiency pockets in the market.


Rolfe felt peer-to-peer funding was a refreshing market addition to offer another alternative to high-net-worth individuals for equity investment up to £1m. It can allow businesses to manage their affairs without needing to also manage a single individual who as the funder may exert unwanted influence over the business.


Quoting personal experience, Lingafelter mentioned “... the frustration of ‘high street’ banks having zero interest in actually understanding the quality of the deal I was bringing to them ...” He had previously brought a similar deal to them, ultimately supported by a 10-year term loan, which he had paid off in three years. “As a new loan it should have been a no-brainer, yet they were only interested in ticking boxes from the security standpoint.”


Murray and Lingafelter also pointed out it was important to be talking to the right lending decision-maker within a prospective bank, or gaining assistance from the right specialist adviser.


Things have improved, commented Roberts. Better communication nowadays between banks and their customers was providing greater understanding of business needs and deal opportunities.


Thorburn agreed, highlighting shorter decision-making processes and more emphasis on local relationship banking.


The rise of boutiques and crowdfunders


The role of boutiques and specialist dealmaking advisers has been increasing in importance in recent years, helping to make the market more nimble, noted Murray.


(Boutiques derive at least 70% of income from dealmaking fees, and gained around 30% of global M&A fees last year,


THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2015


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