1. Professional Briefing –
“Wot, no bank funding!”
A review of funding (and transaction) trends and implications for the year ahead
14 March 2012

2. Administration
Admin
Timetable
Presenters…

3. Presentations covering…
• Lessons for debt, equity and grant raising from
2011
• Expectations and market developments for 2012
• Implications for SMEs
– Legal
– How to succeed

4. Lessons (and trends) in debt
funding
Mark Greaves,
Corporate Finance Partner, Francis Clark LLP
Mark.Greaves@francisclark.co.uk

5. Key themes from WMN Deals Review - 2011
• Small recovery in reported Deals
Number of deals per month (3 month rolling average)
50 800
CorpFin deal data (right
45 hand scale)
700
40
35
600
30 WMN Deals Review
(left hand scale)
25 500
20
400
15
10
300
5
0 200
Oct-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11

6. Key themes from WMN Deals Review - 2011
• Increase wholly attributed to Sales and
Acquisitions
• Decrease in MBOs, equity finance etc
• Significant decline in equity deals (25 v 36)
• Increase in JV (renewable projects)
• Large number of aborted deals

7. Banks…
• Increase in bank funded deals
• Still well below deal volumes in period 2006 to
2008
• Very few MBOs/ MBIs funded purely from debt
Deals funded by main clearing banks
2011 2010 2009 2008 2007 2006
Acquisitions 43 35 32 61 60 51
MBO/ MBI 6 8 10 12 15 20
JV/Merger 4 2 - - 1 1
Raise equity 3 8 1 1 3 2
Other 3 4 2 4 2 11
59 57 45 78 81 85

8. Banks: National perspective
• “Banks miss Merlin target for SME loans”
– Net lending to businesses by Britain’s five main banks
fell £9.6bn last year
– Over £1bn shortfall to small businesses (target =
£76bn; actual = £74.9bn)
– “regulatory changes and higher wholesale costs had
constrained the ability to banks to lend” (CBI)
– Demand v Supply

9. Debt finance – Government help?
• “Negotiated deals [on lending levels] cannot be a
permanent solution in a market economy” –
George Osborne
• Government will seek to lower cost
– National Loan Guarantee Scheme
– £20bn – to cut interest rates by 1%
• Government to increase competition?
– Business Finance Partnership (£1bn +)

10. Interest rates

11. Cashflow funding
• Match concept
• Profit stream historics (5 to 7 years)
• EBITDA altered focus (depc’n v capex)
• PGs (min ++)
• Differential between main clearing banks
• Sensitivities
• Costs
• Vendor subordination

12. New players
• New Banks and mezzanine funders:
– Co-op
– Santander
– Octopus
– Project Rainbow
– Handelsbanken
– Centric
• Second tier HP

13. Debt: Practical points
• Banks no longer funding “equity propositions”
• Credit committee versus front line managers
• Approval process – try, try and try again
• ABL versus others (esp. o/d)
• Covenants and enforceability
• Own versus new clients
• Specific bank appetite – renewables, property, etc
• Look at proposal from their side!

14. Grants –
‘last days of the free money?’
David Bullen,
Corporate Finance Senior Associate, Francis Clark LLP
David.Bullen@francisclark.co.uk

15. Background and themes
• Background
– UK Government has no funds and/or appetite to stimulate
growth through new money..
– Convergence funding for Cornwall & Isles of Scilly ends
running from 2007 to 2013
• Themes?
– Announcements (followed by delays)
– Reassignment/ Recycling of funds
– ‘End dates’
– Competition for Funds e.g., PWGF 3rd round

16. “New Funds”
• Regional Growth Fund and Assisted Asset
Purchase Scheme
– Grants of up to £500k
– Match with bank loans
– Investment in capital assets and job creation
– RBS/ Nat West and HSBC

17. “New Funds”
• Business Investment in Growth (“BIG”) Voucher
Scheme
– Grants of up to £50k
– Match funding
– “step change” expenditure
– High growth businesses
– Convergence

18. Old favourites…
• Grant for Business Investment
– Up to 50% of capital costs or ‘capitalised salaries’
– Innovative knowledge based projects
– GVA
– Creating skilled employment
– Convergence

19. A bit like GBI..
• Cornwall and Isles of Scilly LEP application to RGF
– “GBI style grants for premises and equipment”
– Superfast Broadband opportunities
– Infrastructure projects in marine, mineral, renewable
energy and aerospace industries

20. A bit like RDPE…
• Rural Economy Grant (REG)
– £60m scheme (new money?)
– Grants of b/w £25k and c £1m
– ‘game changing’ performance
– Farm, forestry, tourism, agri-food businesses
– Convergence??

21. Grant raising
• Business case to the fore
• Match grant with business model/ need
• Dialogue
• Three questions
– Eligibility
– Quantum
– Issues
• Patience/ timetable

22. A review of funding trends and implications for the year ahead
GAVIN POOLE, partner, corporate team
14th March 2012

23. CORPORATE EXPERTISE
• Service to national clients
• Disposals, acquisitions, joint ventures, buyouts, debt
restructuring, finance raising transactions
• 71 corporate transactions in 2011 and a range of other
advisory matters
• 15 senior transactional lawyers
• Partner led service
Corporate/M&A: South West
Devon & Cornwall

24. Legal observations
• Pressures
• Finance
• Resource (inc time)
• Sector activity
• Charities
• Highly regulated (eg care homes)
• Big Society
• Management buyouts
• Sharp decline in larger deals
• Reduction in deal values
• More exits by private equity
• Increase in use of debt finance
• Foreign investment
• Cash
• Reserves
• Shortage

25. Legal implications
• Continued consolidation
• For larger businesses, pressures to keep up profits drive restructurings
• Lower deal values point to a number of potential factors including:
• Drop in business values?
• Less funding available?
• Increase in exits point to a number of potential factors including:
• Cashing in?
• Lack of confidence?
• Cash availability
• New entrants/ways of raising money

26. A new team event: Finance
• Structures in a different landscape
• Reward
• Reduced upfront payments
• Loan payments
• Deferred consideration
• Consideration in non-cash elements
• Put and call options
• Security
• Difficult to predict mix of debt and equity
• Grant funding
• Prime/sub-prime competition
• Risk
• Co-investment (risk sharing)
• Performance based deferred consideration
• Joint ventures
• Options (planned/staged transfers)
• and many more…

27. Old and new sources of finance
• Old
• Debt
• Equity
• Fools, friends and family
• 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
• New
• Joe Public (phase II)
• Crowd
• Peer-to-peer
• Other structures/other uses
• Co-ventures with Big Society stakeholders
• New entrants
• Banks, grant funding

28. Next 9 months
• Launch of charitable incorporated organisations (“early” 2012)
• Guidance on corporate environmental impact (during 2012)
• Changes in qualifying conditions for EIS/VCT schemes (April 2012)
• Olympic Games
• Changes in registration of security (October 2012)
• Procedural
• Clarification

29. Crystal ball
• World economy
• Convergence funding coming to a close
• Rise in complexity of structures?
• Rise in activity expected
• Confidence…due diligence

30. THANK YOU
Gavin Poole, partner
Truro office
01872 243344, gavin.poole@footanstey.com

31. Finance Raising in 2012
… a focus on equity?
Mark Greaves,
Corporate Finance Partner, Francis Clark
Mark.Greaves@francisclark.co.uk

32. Finance Raising
• Debt
• Grant
• Equity
– “Although the number of equity deals decreased…
Downing, Eden, Octopus and Piper active… expect the
number of equity backed deals to increase
substantially into 2012.” – WMN Deals Review

33. Friends, family
and …
Business Angels
Venture Capital
Private Equity

34. Business Angels
• Crowdcube/Kickstarter
• SWAIN/Beer and partners
• South West Cleantech Co-Investment Fund
• Angel Co-Fund
• EIS/SEIS

35. The Angel CoFund
• Initial Equity Investments
• £100k to £1m
• Alongside syndicates of Business Angels
• Upper limit of 49% of any investment round
• No direct applications by SME

36. Seed Enterprise Investment Scheme
• Investor and invest up to £100k
• Staff < 26, Assets < £200,001
• New Business
• Tax reducer equal to 50% of investment
• Proceeds of any gain reinvested into a SEIS exempt
from CGT (fiscal year 2012/13)
• Details to follow…

37. Equity providers
• Relevant funds :
– Altitude (Bath 2012)
– Westbridge (North Devon 2012)
– Chrysalis
– Broadlake
– Eden
– Octopus
– Matrix
• Business Growth Fund
• Improve debt proposition

38. Business Growth Fund
• Commercial Fund
• Bank financed
• Investments of b/w £2m and £10m
• Minority stakes
• Relaxed on sectors – but no property or financial
services

39. Doing the equity deal
• Know your market
– Business Angels
– Venture Capital
– Private Equity
• Understand ‘Risk v Reward’
• Know ‘enhancements’ – EIS etc
• Understand valuation and Investor Return
• Sector and Geographical specialisms
• Do not forget about Debt and Grant…

40. Equity deals
• Piper/Celtic
• BGF proposal
• Altitude/technology
company

41. Conclusion
• There are funds?
• Missing ingredients?
– Confidence
– ‘The right propositions’

42. Conclusion
• Strategy for 2012
– Creative solutions
– Know the market place
– Look at the proposition from the other side
– Understand key requirements of
• Credit committees
• Investors etc
• Vendors

43. Future events/ presentations
Next professional briefing
• Manufacturing UK – 26 April, Lowin House
Finance in Cornwall 2012 – 15 May, Lighthouse
Cinema, Newquay
Now in its fifth year; with a slightly revised format.
VIP speaker (TBC). More information to follow.

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