Interesting changes within funding markets

In a recent article, my colleague Kevan Shaw highlighted the exceptional transactions that we have completed in the past 12 -18 months and the continuing strength of our pipeline of work. In delivering these transactions we are acutely aware of the significant development that are happening across the funding markets and can our experience means we can guide our clients through the forest of funding options.

Our experience of working across the range of funding options, from Private Equity, Family Investment Funds, High Street banks and the Independent Debt Funds means we understand the unique approach each form of funding can take. With the market being so competitive each funder is looking for an opportunity to differentiate themselves from the market, whether it is in the structure of their investment or other benefits they can bring to the transaction.

The funding market for SME’s remains buoyant with a wide range of funds and funders actively looking for opportunities. The sustained appetite and value of new funds raised means that the funding market is there to support progressive, entrepreneurial companies and these companies have their choice of funding solutions.

Our experience of completing the high-profile transactions is that external factors such as Brexit and the General Election have had little or no impact on the progress of transactions we have worked on. Whilst individual companies will have faced challenges, well run companies with clear direction remain highly attractive to funders.

In terms of funders the Private Equity market remains buoyant with many funds raising significant additional capital. The defining point of Private Equity is that they are looking for opportunities that will deliver considerable capital growth, and this has a fundamental benefit for the management team. Whilst they do release a proportion of the shareholding they would see their value accelerate alongside the equity investor through sustained accelerated growth.

As a challenge to the mainstream Private Equity funds there are several “family funds” where international trading businesses or wealthy individuals have set up independent venture capital funds. These funds are actively targeting robust UK companies across all industry sectors.  We are working on several transactions, across numerous industries and these private funds, and it is clear if these funds are attracted to an investment they can react very quickly to secure the transaction and significantly accelerate the deal process.

The equity market remains robust, we are aware of over 120 UK based private equity and family funds along with a further 200 that operate from Europe.

Away from equity finance the debt markets continue to develop. High-Street Banks remain cautious but have returned to the transaction market through offering cash-flow loans. They remain interested in opportunities where the debt proposal is straightforward, supported by strong asset backing or strong historical cash flow.

We are seeing significant developments in the “challenger” bank and private debt fund markets. During the year, we completed several transactions where we engaged with these debt funders. One transaction was a Management Buy-In of an exceptional business that operates in the Oil and Gas sector.  The deal was funded by a listed debt fund and it was clear through the process that they had a more flexible, pro-active, commercial view than many high-street banks.  We found that these independent debt funds can view the investment over the longer-term on the basis the businesses are stable and cash generative.  The result is that the businesses benefit from having debt finance extended over a longer period delivering significant benefits to cash flow.

The first stage in any fund-raising process is understanding our clients long term objectives. We also spend time engaging with funders so we can understand the developments in the funding markets so that, at Castle Square we can offer clear practical advice on the most appropriate form of finance.

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