Presentation by Steve Gordon, Director, SMG Corporate Finance at the Health Sector Business Breakfast, 16 March at Northwich Memorial Court.

1. SMG-CF Limited
Positive and Imaginative Corporate
Finance Solutions
Raising Finance

2. Debt Providers
• Banks, Invoice Discounters, Asset Finance
• Ability to lend = security
• Require fixed and floating charge
• Requirement to pay interest
• Ability to appoint administrator
• “Debt pain point” – no more money

3. Remedies
• Don’t grow
• Sell the business
• Joint venture
• Private investors
• PE / VC

4. PE / VC Option
• The provision of Equity (risk) funding in
return for a stake in the business
• Typical investment package
Ordinary shares – voting
Stake range 15% to 40%
Preference shares – non voting and redeemable over time
Quasi debt which adds to your business without a voting equity cost
Loan stock – usually unsecured but high yield and redemption premium
• Why should I give equity away in my
business

5. Equity Cake Argument
100%
Privately
owned
75%
privately
owned
25%
PE / VC
Before After
Equity Equity

6. Risk v Reward
SECONDARY or IPO
Reward
Risk
SEED FUNDING
START UP FUNDING
DEVELOPMENT FUNDING

7. Private Equity Criteria
• Management
• Past performance
• Future performance
• Exit strategy

8. Management
• Key criteria: management, management,
management
• Well rounded team including;
~Managing Director
~Finance Director
~Production Director
~Sales Director
~Non-executive director
• Relevant experience

9. Past Performance
• Historic financial information including;
~Profit and loss account
~Balance sheet
~Cash flow
• Commentary on growth
• Explanation for ‘blips’
• Successes
• Strengths

10. Future Performance
• Financial projections
~Profit and loss account
~Balance sheet
~Cash flow
• Sales and marketing strategy
• Analysis of market
• Competitor strategy

11. Exit strategy
• Secondary private equity purchase
• Trade sale
• Flotation

12. Vendor concerns
• A 30% to 40% IRR is extortionate!
• Will they take over my company?
• When will they EXIT from the company!
• What is the equity provider looking for?
• Are there limits to the funding available?
• How does the investment process work?

13. Timetable to completion
• Preparation phase (Months 1-2)
~Appoint advisers
~Build financial model
~Write business plan
~Identify appropriate institutions
• Market phase (Months 3-4)
~Attend meetings with institutions
~Negotiate outline terms
~Receive offer (subject to conditions)

14. Timetable to completion (cont)
• Completion phase (Months 5-6)
~Due diligence
~Legal documentation
~Liaison of bankers, accountants and solicitors
~Completion meeting