AIM-listed Marlowe Plc has acquired wastewater treatment and compliance services provider WPL Limited for an enterprise value of £10 million. With headquarters in Waterlooville, Hampshire, WPL…
In the first blog in this short series I summarised some the headline figures to advise/ remind readers of the scale of investment by UK government but more specifically for this blog, the amount of debt taken on by UK businesses.
Implications for SME business finance, focusing on debt and equity?
I see 7 key implications for SME funding from the “lockdown lending”:
- There is going to be a period starting in January 2021, but ramping up from March 2021, when debt taken on in lockdown (including deferred tax) has to be repaid.
- Refinancing of lockdown borrowing is not going to be easy or straightforward (see further below).
- The high-street banks’ appetite to lend more/ take on new customers is questionable and with good reason – they have lent the majority of monies under CBILS and BBLS leaving their “bandwidth full” (put another way, we have heard comments that some banks did 2 to 3 years’ worth of lending in a matter of months!). At best it would not be unreasonable to assume that they are going to be more selective with new customers they take on (this statement has been borne out in some of the conversations my colleagues and I have been having with contacts at high-street banks). Notwithstanding, high-street banks will remain a major part of our funding environment.
- More equity less and debt going into investment propositions from VC/ PE – see further for additional comments re Management Buy Out funding
- Increasing exposure for the Alternative Finance lending community as businesses expand their debt searches beyond the more traditional sources. I will be very interested to follow developments in this area (one of our team projects is to share contacts we have and build a database of lenders relevant to Corporate Finance transactions as well as spread the knowledge of Capitalise amongst colleagues in the wider PKF Francis Clark practice)
- Equity to be used more by innovative companies
- Equity to be an increasingly important source of finance and, as I have blogged previously with references to VC/ PE being well funded with an increased appetite to invest in new propositions; this latter point was to a degree borne out by comments by one of the BGF team at a recent virtual Insider event when he stressed there was a demand for strong proposals (and pricing was not shifting for businesses with strong fundamentals) and they were still investing in propositions at a rate of 1 / week [to check]
PKF Francis Clark
As I hope you will gather from the above we are striving to keep on top of developments in the business funding market. This knowledge, and the importance of positioning/ presenting the funding proposition, will I am sure play a key role in the Covid Business Reviews being carried out by us and in our more general discussions on funding with clients and potential clients.
In addition, we are hosting a series of events across the South / South-West on “Unlocking Future Finance” where we look at how “to achieve a successful outcome in uncertain times” – in interactive online workshops. Please keep an eye on our events page for details. And we have already put Finance 2020 out there – and we will be adding content to this over the next few weeks.
One final (quite specific) thought from me. I have been speaking to a number of business owners about MBOs in recent weeks. Whilst the amount of deferred consideration may have to raise and the cost of external debt being introduced to part finance the deal may be increased – there is still appeal to doing a deal. In part due to the realisation that, in certain circumstances, trade sale prices may be suppressed or deal structures leveraged more heavily toward earnouts for a period, meaning a vendor supported MBO provides an opportunity to realise value from a shareholding under the current tax regime, which for the time being remains attractive when compared to other tax rates. Please do not hesitate to contact me further on this point.
If there are any SME funding matters you would like to discuss please do hesitate to contact me or your usual point of contact at PKF Francis Clark.