yfm and adex bridge investments raising finance in challenging times december 2010
TRANSCRIPT
YFM and Adex Bridge Investments
Raising Finance in Challenging TimesDecember 2010
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Our brief
♦ The challenge of raising debt finance
♦ The approach that banks take to managing their customer base
♦ How private equity can play a major part in future growth strategies
Today
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
YFM
♦YFM is a UK fund manager specialising in small businesses
♦Investing up to £8 million equity in rapidly growing companies
♦c.£321 million under management
♦Approaching 30 years of investment experience
♦Investment portfolio of c.250 companies
♦A range of investment funds
♦Investment team of 30 people
♦Principal offices in London, Leeds, Bristol and Manchester
♦Dedicated to working alongside management teams to create
transformational growth
For further information visit www.yfm.co.uk
Introduction
Leeds
Manchester
Bristol London
YFM Private Equity Limited [FSA number 122120] and YFM Venture Finance Limited [FSA number 224728] are authorised and regulated in the UK by the Financial Services Authority.
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Adex Bridge Investments
♦Joint Venture between YFM and Peter Bridge
♦Midlands Based
♦Led by Peter Bridge who has significant experience in value recovery and corporate restructuring for private equity and banks
♦Equity investment of £1m to £6m
♦Generalist investor with an opportunistic approach across all industry sectors
♦ Fundamentally sound businesses that are too highly geared or cannot raise sufficient bank debt to finance growth
♦ Underperforming businesses where the corporate, owner-manager or family owners are looking for an exit
♦ Pre-packs and Post Receiverships
Introduction
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Growth in the SME sector is key to the recovery
♦ Current phase of the recessionary cycle – stabilising and growth
♦ SMEs have traditionally led the UK out of recession
♦ SMEs are responsible for c50% of the UK’s GDP
♦ SMEs usually account for over 60% of employment growth, as we come out of recession
♦ As SMEs are often more flexible and more agile than larger firms they are usually able to seize growth opportunities quickly
Recovery
… but clear challenges remain
♦ The business climate generally will remain challenging for longer than previous recessions.
♦ Those SMEs with a higher reliance upon the public sector will find recovery more difficult but those with a strong export focus should find growth sooner
♦ Are the banks prepared to finance this growth?
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
What is the current banking climate?
♦ Banking conditions remain challenging
♦ Return of some liquidity albeit at significantly lower levels than pre “credit crunch”
♦ Banks remains focused on high-grade businesses
♦ Pricing and maturity has improved marginally, over the last 12 months, but remain less favourable than pre “credit crunch”
♦ Banks are more supportive in this recession
♦ Banks are taking more equity stakes than ever before
♦ Banks now own large property portfolios
♦ Banks are looking to reduce their exposure:
• Sector Avoidance
• Loan to Value requirements remain depressed
Banking climate
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Conventional Debt
Debt finance
♦ Overdraft
♦ Senior Loan/Cash Flow Loans
♦ Loan Notes
♦ Government Grant
♦ Letters of Credit
♦ Invoice Discounting or Factoring
♦ HP & Leases
♦ Mortgage
Asset Based Lending
Low Risk High Risk
Sector Risk
Level of Security
Company Risk ManagementRISK
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
How to manage your bank?
♦ Maintain channels of communications
♦ Avoid getting entrenched
♦ Be realistic
♦ May need to reset expectations
♦ Work on maintaining their confidence in:
• Your Management Team
• Your Advisors
• Your Business
♦ Try to maintain more headroom than usual
♦ Be transparent, realistic and pro-active
Managing your bank
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Case study
Case study - Gambler
♦ Designer, importer and distributor of gaming products
♦ Market Leader with strong brands
♦ Customers include large retail multiplies, sports shops, pubs & clubs
♦ MBO in 2005
♦ Revenues & Profits hit by
smoking ban in 2007
recession from 2008
stronger US$ in 2009
virtual collapse of large customer in 2009
SALES & EBITDA £000s
0
2,000
4,000
6,000
8,000
10,000
12,000
2005 2006 2007 2008 2009 2010 (F) 2011(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
Sales EBITDA
DEBT STRUCTURE £000s
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010MBO Loan Notes Senior Debt Supplier Loan Notes Working Capital Facil ity
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
How did we restructure the company?
Case study
DebtBank's
ExposureCapital
Payments£'000 £'000 £'000
Overdraft 540 NILID Facility 1,500 NILSenior Loan 1,150 450
Banking Facilities 3,190 3,190
Creditor Loan 724 208
Loan Note 2,000 NIL
Total Borrowings 5,914 658
Equity Shares
Owner-Director 100%
100%
Pre-Restructuring
DebtBank's
ExposureCapital
Payments£'000 £'000 £'000
Overdraft 540 NILID Facility 1,500 NILSenior Loan 150 150EFG Loan 1,000 NILBanking Facilities 3,190 2,440
Creditor Loan 724 104
Debt to Equity NIL NIL
Total Borrowings 3,914 254
Equity Shares
Owner-Director 70%
Bank 19%
Ex-Partner 11%
100%
Post-Restructuring
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
What is private equity?
♦ A type of finance consisting of equity securities in operating companies that are not publicly traded
♦ Most common investments:
♦ Leveraged buyouts
♦ Venture capital
♦ Growth capital
♦ Distressed investments
♦ Mezzanine capital
♦ Investors in private equity:
♦ Institutions – banks, pension funds
♦ Retail
♦ Public funds
Private equity
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Where does private equity fit in to the risk spectrum?
♦ The spectrum of risk and reward
♦ Challenging times - banks retrench
Private equity
♦ Lower risk
♦ Lower return
♦ Higher risk
♦ Higher return
♦ Different environment:
♦ Shell shocked
♦ Uncertainty
♦ Nervous banks
♦ Survival of the fittest
♦ Growth sectors
♦ Asset prices generally lower, but premium paid for strong assets
♦ Funding is available - is now the time to invest?
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
What does YFM look for?
♦ Businesses on the cusp of transformational growth
♦ Ambitious management team
♦ Strong brand, niche product or innovative approach to market
♦ Scalability
♦ Sensible entry price
♦ Strategic value on exit
Private equity
How does YFM drive growth?
♦ Support and close involvement
♦ Experience
♦ Focus and alignment
♦ Access to further funding
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
President Engineering Group
♦ MBO October 2010 backed by YFM
♦ Manufacturer of specialist valves for the deep mining and industrial gas sectors
♦ Primarily export, with significant opportunities in developing economies
Case study
Challenges Solutions
Bank nervousness Introduction of equity and vendor loan
Uncertain growth prospects and exit route Leveraged structure and early exit planning
Capable but relatively inexperienced management team
Introduction of serial NED Chairman
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Summary
♦ Conditions remains challenging – have banks got the appetite to finance SME growth?
♦ Banks are looking to reduce their exposure to risk
♦ More important than ever to manage your bank relationship
♦ The economic cycle is presenting growth opportunities
♦ Private equity is a serious alternative to debt
♦ Private equity works alongside management teams to deliver value
Wrap up
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Contacts
Peter Bridge: Adex Bridge Investments Ltd
Office: 0121 4477103Mobile: 0781 2217996Email: [email protected]
Ian Waterfield: YFM Private Equity Ltd
Office: 0161 832 7603Mobile: 07771 578 416Email: [email protected]
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Case study graph
SALES & EBITDA £000s
0
2,000
4,000
6,000
8,000
10,000
12,000
2005 2006 2007 2008 2009 2010 (F) 2011(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
Sales EBITDA
© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.
Case study graph
DEBT STRUCTURE £000s
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010MBO Loan Notes Senior Debt Supplier Loan Notes Working Capital Facil ity