Io d presentation(7364080 1)

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Presentation at an IoD South West event held at Foot Anstey's Truro office on 28th March 2012

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Io d presentation(7364080 1)

  1. 1. DEBT AND EQUITY FINANCE IN THE SOUTH WEST – THEOPTIONS EXPLOREDGavin Poole, partner
  2. 2. Programme• Welcome• Introductions• Speakers• Q&A• Networking and refreshments• Close
  3. 3. Supporting the Institute of Directors• South West region: • Bath, Wiltshire, Bristol, Devon, Cornwall, Dorset, Gloucestershire and Somerset • IoD South West Director of the Year Awards: closing date: 30th March 2012 • Next events: • meet Simon Walker (IoD Director General) • visit to Honda car and engine factory • successful women in business • networking events • See IoD website for further details
  4. 4. Premier South West Law firmLegal Week Regional Law Firm of the Year 2011Nationally recognised for our sector expertiseDepth and breadth of capability in over 25 areas of lawOver 350 staff including 250 lawyers and 52 partnersOffices in Truro, Plymouth, Exeter, Taunton, Bristol
  5. 5. Context• 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• Western Morning News deals review 2010-11 • ↓ Equity deals • ↓ Deal values • ↑ Bank funded deals • ↑ Exits by investors • ↑ Expectation of equity backed deals in 2012• New entrants • Peer-to-peer – Crowd – Grant – Banks – and more • Overseas• Increasingly complex landscapes and matrices
  6. 6. Our speakers• Richard Davis • Senior manager • Devon and Cornwall • Lloyds TSB Commercial• Bruce Colley • Consultant • Pegasus Funding Resources• Paul Oldham • Regional director • South West and South Wales • Business Growth Fund plc
  7. 7. Debt Finance Richard Davis Senior Manager - Lloyds TSB CommercialIoD Devon & Cornwall - Foot Anstey seminar 28th March 2012
  8. 8. Wide range of financing options Overdrafts Business Term Growth Loans Fund Loan Business Guarantee Angels s Schemes Asset Regional Finance Growth Fund Invoice Discountin Crowd g& Cube Factoring 8
  9. 9. The right mix of optionsFor example ; Asset Finance Invoice Term Loans Discounting & Factoring Business Growth Fund 9
  10. 10. BUTFor a business the best form of financeto support growth by far is ; 10
  11. 11. The right mix of options Invoice Asset Finance Discounting & Term Loans Factoring Business Growth Fund RETAINED PROFITS 11
  12. 12. Debt FinanceThe lending story;Advantages / disadvantages• Types of debt finance: - General - Specialist• Costs including NLGS
  13. 13. Debt Finance• General debt finance: - Loan - Overdraft - Invoice financing - Asset Finance• Specialist schemes – e.g. EFG, Export finance
  14. 14. Advantages of debt comparedto equity• Generally cheaper and usually less complicated• The owners ownership interest in the company is not diluted• A lender has no direct claim on future profits of the business• Repayments can be forecasted and planned for• Interest tax deductible
  15. 15. Disadvantages of debt comparedto equity • Loan debt must be repaid on terms agreed at the outset rather than performance related • Cash requirement may restrict investment • Weakens rather than strengthens Company balance sheet • Security required which may involve personal assets pledged as collateral
  16. 16. The right mix of options Invoice Asset Finance Discounting & Term Loans Factoring Business Growth Fund RETAINED PROFITS !!! 16
  17. 17. Enterprise Finance GuaranteeScheme• Loan facility between £25,000 and £1m.• Up to 10 years repayment• Must meet eligibility criteria• Viable business proposition but lacks security (including personal security)• Personal Guarantee required• Government Guarantee for 75% of loan
  18. 18. Two EFG examples• Profitable family Retail business established for over 30 years.• Sold to employee with £25k stake from him and EFG loan of £100k• Software business developing new product• £60k EFG loan for IT equipment and 2 new staff .
  19. 19. Export Finance – What’s involvedReceivables and Cash / CapitalPost Shipment Orders fromFinance Buyers/LC. Receivables Order Goods Import/Pre- Shipment Finance Delivery/Shipment Receive Goods of Goods Import/Pre-Letter of Credit Shipment Loan- Pre-ShipmentFinance
  20. 20. Import finance – an example• Wholesale & retailer of stationary• Funding through CID line – including export lines• New large order received from major retailer• Goods sourced from suppliers in Far East• Suppliers require payment when goods on water• Additional $320K required – but current facilities fully utilised• CID funding only available when goods delivered and invoice raised
  21. 21. Import finance – an example (cont)• Seller sends documentary collection to LTSB• As goods ‘pre-sold’ we pay collection using Import Loan and release documents to customer against Trust Receipt• Goods cleared & delivered to end buyer• Invoice raised and discounted – proceeds repay Import Loan• Works from the Bank’s point of view because we control the payment to supplier and retain ownership of stock until purchased .
  22. 22. Supporting trade through government schemesDesigned to help exporters with their cash flow, thus enabling them to fulfil exportorders more easily The UK Government’s Trade andInvestment White Paper plans to increaseTrade support Four schemes launched so far:  ECGD Letter of Credit Guarantee Scheme  ECGD Export Working Capital Scheme  BIS Export Enterprise Finance Guarantee Scheme (Ex EFG) Your IBM has access to these LBG supports all these schemes schemes
  23. 23. Cost of Debt FundingBorrowing linked to:• Base rate (currently 0.5%)Or• LIBOR ( 3 month rate currently 1.04%)
  24. 24. National Loan GuaranteeScheme• Enables participating banks to offer 1% discount on standard interest rates for first 5 years of a loan
  25. 25. Market expects no change inbase rate until 2014 3mth Libor % 7 6 5 4 3 LBCM Forecast 2 1 Market Forecast 0 2008 2009 2010 2011 2012 2013 2014Source: Bloomberg & LBWBM Research
  26. 26. National Loan GuaranteeScheme• Enables participating banks to offer 1% discount on standard interest rates for 1st 5 years of a loan• Why is it needed ?
  27. 27. Banks wholesale funding costs have risen as money markets have tightened UK banks 5-yr term funding costs (%) 9 8 UK Bank CDS spread 7 3mth Libor spread UK Bank Rate 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011Source: Bloomberg & LBWBM Research
  28. 28. NLGS loans - key details• Min £25k Max £5m• 1 to 25 years• Must be in UK and not for Export only• Counts as state aid under EC rules so: - Some sector exclusions e.g. Road Haulage - Total benefits provided by discount plus any other State Aid being received must not exceed EC thresholds - Customers with a current EFG loan excluded• Subject to above 1% discount applies for 5 years, then interest rate reverts to standard.
  29. 29. Summary• Debt finance plays a key role• Right type of finance for the right purpose• Getting the mix of finance right is important
  30. 30. “Mind the gap” Alternative funding Bruce Colley 28th March 2012© Pegasus FundingResources
  31. 31. The context (Lending)© Pegasus FundingResources
  32. 32. The context (Median interest rates)© Pegasus FundingResources
  33. 33. Last 12 Months Lending Picture• Commercial Mortgages +6.3%• Asset Finance +3.5%• Invoice Finance +6.6%• Buy to Let +46%• Property Development Loans +108%• Vehicle Finance -68%• All Other Lending +14.7% But wider type & variety of lenders and types of lending• Source NACFB© Pegasus FundingResources
  34. 34. Sources of finance (High street banks) ix en on s o on ti Ph da ti t up re/ h ne ep oli isi wt rt- qu nc cli ns ilu o Sta De Co Co Ac Gr Fa FFF   Personal mortgages   Grants   Regional loans  Commercial mortgages   Bank EFG    Bank overdraft   Bank commercial loan    Leasing / HP      Factoring       Confidential invoice discounting      Single invoice discounting     Trade finance   Money with Management    Re-financing of assets    Angels      VCs    Recovery angels  © Pegasus FundingResources
  35. 35. Sources of finance (off high street banks) ix en on s o on ti Ph da ti t up re/ h ne ep oli isi wt rt- qu nc cli ns ilu o Sta De Co Co Ac Gr Fa FFF   Personal mortgages   Grants   Regional loans  Commercial mortgages   Bank EFG    Bank overdraft   Bank commercial loan    Leasing / HP      Factoring       Confidential invoice discounting      Single invoice discounting     Trade finance   Money with Management    Re-financing of assets    Angels      VCs    Recovery angels  © Pegasus FundingResources
  36. 36. Sources of finance (specialist providers) ix en on s o on ti Ph da ti t up re/ h ne ep oli isi wt rt- qu nc cli ns ilu o Sta De Co Co Ac Gr Fa FFF   Personal mortgages   Grants   Regional loans  Commercial mortgages   Bank EFG    Bank overdraft   Bank commercial loan    Leasing / HP      Factoring       Confidential invoice discounting      Single invoice discounting     Trade finance   Money with Management    Re-financing of assets    Angels      VCs    Recovery angels  © Pegasus FundingResources
  37. 37. Angel networks (some examples)• Pegasus – Highly selective (introduce 15 to 20 per year) – No events – Prefer trading businesses - £100K to £750K – tend not to be informal syndicates – assist with IR - side with the company• SWAIN – Greater emphasis on startup – Event focussed – lower deal size – average £50K to £150K• Beers – Largest angel capacity – high up front charges – higher success fees• Beer & Young – Turnaround network – work closely with Pegasus• Crowdcube – Crowd funding – large number of small investors (not self-certificated) – seen by wide range of people (so highly confidential businesses may have an issue) – compromises existing EIS investors – work closely with Pegasus• All excluding Beers work on a 5% success fee© Pegasus FundingResources
  38. 38. Debtors paying Cannot fund Cannot pay VAT General cash No cash to grow Cannot buy new No funds for No funds for Company in Loss of credit late new orders or PAYE flow problems business technology start-up acquisitions declineFFF  Personal mortgages    Regional loans Commercial mortgages Bank EFG     Bank overdraft     Bank commercial loan     Leasing / HP  Factoring          invoice discounting          Single invoice discounting          Trade finance   Stock Finance   Recruitment of Non-Exec      Re-financing of assets        Angels   VCs Recovery angels  © Pegasus Funding Resources
  39. 39. Contact Details: Bruce Colley: 07730 029594 bruce.colley@pegasusfunding.co.uk .© Pegasus FundingResources
  40. 40. www.businessgrowthfund.co.ukIntroduction toBusiness Growth FundPaul OldhamRegional DirectorSouth West and South Wales
  41. 41. An exciting and bold initiative to invest growth capital in UK companies as we come out of recession• Established by five of the largest UK banks with £2.5bn of capital• Focuses on growth and expansion funding for UK companies• Long-term business builder through expertise as well as capital• Independent, quick and autonomous decision making• 60+ staff, 6 regional offices, local deal origination, execution and support41
  42. 42. Locations • The BGF is a national organisation with a regional network of offices to drive local deal origination, execution and on-going support Aberdeen Office Edinburgh Office Manchester Office Birmingham Office Bristol Office London Office42
  43. 43. Investment Criteria • Focus on established UK companies with sales of approximately £5m up to £100m • Businesses with past and potential future growth • Capable management team • £2-10 million equity requirement • Growth capital funds can be used for: • Acquisitions, working capital, R&D, capital investment, overseas expansion • Some “cash out” to shareholders but this must be less than 50% of the BGF investment43
  44. 44. Sectors • Generalist sector focus but heavily growth orientated • Excluded sectors: • Some regulated financial services businesses • Property investment and development • Some on ethical grounds (e.g. gambling) • Particularly interested in: • High-tech manufacturing, software and electronics, leisure & tourism, renewable energy & cleantech, healthcare & life sciences, industrial & business services, oil & gas, outsourcing, and digital businesses44
  45. 45. A true partner for families, entrepreneurs and management• Via board membership of portfolio companies, the BGF will provide: – guidance on finance and capital structure – practical support through business partners – strategic growth guidance• Involvement at board level not day-to-day operations• Conservative structures not reliant on debt• Minority investor• Long-term investments with flexibility45
  46. 46. The BGF will• Work alongside other investors• “Plug the gap" between Angel/VCT/Private Investors and Private Equity• Exit Stimulate and grow demand overall for investment into UK SME’s Private Equity Grow Venture Capital Business AngelsStart-up Friends & Family £50k £500k £5m £50m 46
  47. 47. Why Is BGF Different? • Focus on growth capital for SMEs • Flexible, long-term view on exit • Flexibility on investment structures – minority shareholder • Regional office network • Added value for investee companies • Focused diligence process and sensible investment timelines INCREASED CHOICE FOR SMEs47
  48. 48. QUESTIONS? ?
  49. 49. Next events• IoD Events • Refreshments • See IoD website• Foot Anstey events • City conversations: Plymouth, tomorrow morning • Education team seminars• Finance in Cornwall 2012 • Date: 15 May 2012 • Time: 8.30am to 2pm • Venue: Lighthouse Cinema, Newquay
  50. 50. THANK YOUGavin Poole, partnerCorporate team, Truro

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