Raising Finance in a Challenging Environment

Financing Alternatives

Bank Finance

Financing is available from a variety of sources including new challenger banks

The key points in dealing with banks in the current environment are as follows:

1. Commence negotiations early as the approval process is taking significantly longer to complete;
2. Ensure compliance with all current loan documentation, information and covenant requirements;
3. Broaden banking relationships, both domestically and if appropriate internationally; and
4. Improve chances of successful financing by considering other options. These include financing based on assets, invoice discounting for working capital facilities, the provision of enhanced loan security and/or additional equity.

Equity & Bond Markets

The stock and bond markets are available for large and medium sized companies.

Bond markets have provided large amounts of debt for public companies allowing refinancing often at lower interest rates.

The following are the key points for a company considering an IPO:

1. Solid Track Record. The Company needs to demonstrate that it has made both financial and operational capability for a public company.
2. Sufficient Management Depth. Running a public company from the regulatory perspective and reporting to the investors requires an experienced management team to execute the business plan. Companies also need to strengthen their board of directors to ensure the necessary support and governance.
3. Business Plan. The goal of investors is to realise a growth in shareholder value through capital gains and dividends. The relative performance of a company within its sector will be closely followed. A clearly executed plan based on either organic and/or acquisition growth will be monitored by investors.
4. Managing Investors. Consistent investor relations are crucial in order to maintain interest in a company following a flotation and to manage expectations

Venture Capital & Private Equity

There is continuing availability of equity funding from both venture capital and from private equity.

Large technology companies  have been providing venture funding or purchasing purchasing smaller technology businesses

Bridging the GAP

In spite of the improving sentiment, there remain many situations where bank or equity/debt funding from the capital markets or from private equity/venture capital is not available. In such situations creative financing solutions need to be considered. These include:

1. Joint Ventures. A joint venture with a client or a competitor is an alternative to an M&A transaction where financing may be an obstacle. This can provide opportunities to access new markets or sectors particularly internationally and where both parties add value to the venture. However, joint ventures can be difficult to manage and it is therefore imperative that clear responsibilities and the sharing of risk and return are agreed at the outset to avoid paralysis in decision making and potential poor performance. Whilst successful, JVs can continue operating for many years. There are cases where one party will purchase the shares of its partner at the appropriate time.
2. Supplier Financing. With working capital constraints and limited bank funding, businesses may have to resort to a variety of methods to ensure business continuity. A supplier will be keen to ensure that his products can continue to be sold. Therefore the availability of extended credit lines, medium to long term loans and even equity injections have been provided recently by suppliers. Commencing early discussions is important and the company may benefit from the financing terms and the speed of response.
3. Client financing. Similarly, a number of businesses have resorted to asking their clients for funding. With knowledge of the product and of the business, a client or a syndicate of clients can provide a more rapid bridging solution for short to medium term funding.
4. Club Deals. For M&A transactions or for the purchase of assets, several equity investors can join together with the view of concluding a transaction and refinancing at a later stage when debt or private/public equity is available. This has been a common practice in the property market during 2009.

Activities of DC Dwek Corporate Finance

DC Dwek Corporate Finance prides itself in developing creative financing and transaction solutions for its clients and partners. During 2009, this has included successful financing, joint ventures and execution of complex Government contracts in the international mobile water desalination sector. This has provided hands-on experience of financing and growing an international business through a joint venture in a challenging market. Similarly, our advice to private and publicly listed clients on balance sheet restructuring has provided assistance with commercially appropriate solutions. Whether it is building businesses internally, via acquisitions, joint ventures, raising finance through banks or in the public markets, DC Dwek Corporate Finance has the international experience to assist clients.

The views expressed in this newsletter are for information purposes and are intended for eligible counterparties and professional clients only.
DC Dwek Corporate Finance Limited is authorised and regulated by the Financial Conduct Authority.