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poor, Fiscal is now considering acquisitions of technology businesses that might complement its operations.
Davis said Reality HR had spare cash too and an acquisition was an option. It wasn’t only the big corporates that made acquisitions, she stressed. She exampled a client with 50 staff, buying a business with 250 staff. “By utilising the respective skills of the two companies they are unified and much stronger now.“
Griffiths: “For us it is all about compatibility, a business having a technology that will fit into our forensic suite.“
Hunt of BCMS, specialist international sell-sale advisers, said many companies and PE houses had built up significant cash reserves since the recession and were now looking at ways to invest that money. “There’s a great deal of money out there, but it’s finding the right opportunity to invest.“ He exampled one International business BCMS sold a business to, currently funding acquisitions to bring together centres of excellence in specialist sectors.
The Roundtable agreed that finding the right business to purchase was a challenge, but so was finding one at the right price. The market is undoubtedly competing very strongly for the best targets which is underpinning prices; this is perhaps favouring longer-term strategic acquires right now, Hunt commented.
Often, the building of businesses differs in the US, said Griffiths, with equity funding brought in much earlier, followed by several rounds of financing, with the aim being rapid business growth leading to a sale to a larger company. We are very much trying to avoid this route and grow organically based on customer success.
Ever considered giving up equity to speed your growth?
The Roundtable agreed it wasn’t high on British entrepreneurial agendas.
“Like we’ve already said, it not all about making money. We just don’t like someone else telling us what to do, or asking why we have not hit a target,“ said Chapman.
Davis agreed: “I would feel like I was losing personal control of my business. I left the corporate world because I didn’t want to be told what to do.“
Griffiths said the big equity question for entrepreneurs was: “Do you want a small part of a big pie, or a big part of a small pie?“
Equity funding is certainly very available, added Griffiths. “I didn’t realise the number of private
www.businessmag.co.uk Josh Williams
equity houses out there. I get invitations every week offering funding.“
Hawkeswood: “It depends on the business. There are certain companies that know they will not be able to make the leap to the next stage without a cash injection. Good PE houses will provide that, along with the freedom for people to feel they are still calling the shots.“ Most PE houses look for ambitious businesses with their own growth plans, he added.
“For those who are mistrustful of the PE world, it can be a worry that people might be constantly looking over their shoulder, but the reality is that PE houses back management teams more than businesses. They have to trust those teams to deliver.“
Hunt agreed that PE teams nowadays were far more supportive of management efforts to achieve objectives, and felt that the negative reputation of PE houses being aggressive with managements is less prevalent. “With a strong business model and good planning, you can make significant business gains from PE support, but you have to accept the drive for growth because the PE house will want a return on its investment.“
Williams: “More important than the money, is the people who give you the money.“ If he ever undertook equity funding for his business growth he would seek out the ’smart money’ – funding that came with sector expertise, business contacts, experienced support and people he felt he could work with.
Hawkeswood pointed out the UK’s beneficial tax incentives for business growth. “Arguably, the tax environment has never been better. If you are willing to give up some equity or willing to invest in someone else’s company with the likes of the Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT), substantial shareholding exemptions etc, there are tax breaks all over the place for people who are willing to provide funding.“ Many of his clients, wealthy individuals and companies, were now seizing these tax opportunities not least because of the paltry returns currently available on savings.
Williams said he had just done a Seed Enterprise Investment Scheme (SEIS). “It’s a really good option.“
Hunt agreed that many high-net-worth individuals were now investing in businesses to get better returns, even to the extent of setting up their own funding operations.
Has funding ever been a problem?
Griffiths felt there were early-growth funding concerns. “We could get equity funding for £2m but we couldn’t get a bank loan for around £250,000-£500,000.“ His company had finally secured such loans using the Government’s Enterprise Finance Guarantee support but he felt mainstream banks were too conservative. “I don’t think they understand entrepreneurs and small high- growth business.“
Chapman agreed, highlighting the instance when his company lost its biggest client without warning. “I went to my bank, which I’d been with for six years, never been overdrawn before, and asked for a temporary £30,000 overdraft facility. They said, ’Yes’, but we’ll need to value your house and your partner’s as security.“ Chapman said he moved bank immediately and is now much better served.
Laura Davis
Davis said Reality HR had overcome early working capital shortages through family loans. “We don’t need bank funding, but if we did my feeling is that we wouldn’t get the support we need. It is easier to set up a business today than it was 10 years go, but it doesn’t feel that way.“
Chapman announced he would go to alternative funders such as Funding Circle for short-term loans, rather than major banks. Portmore had actually underpinned its annual sponsorship of The Rosebowl in Southampton through the Funding Circle. “It worked so well, I would do it again tomorrow.“
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2014
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