Corporate financing opens up as alternatives fill funding gap

22, Mar 2013

Signs of economic growth and a rise in export activity should result in banks increasing lending. But many can’t wait and are sourcing business finance elsewhere. 

With latest indicators still pointing towards a rise in economic growth in 2013 and export performance also tipped to increase over the next 12 months, many businesses are turning their thoughts to how their investment strategies can drive growth.

The Grant Thornton/ICAEW Business Confidence Monitor indicates a particular rise in export activity among SMEs and a sharp decline in the share of businesses operating below capacity. 

As well as encouraging businesses to invest in growth, this environment should encourage banks to resume lending. However, while overall economic uncertainty remains, businesses may well benefit from continuing to seek funding from the wider financing community – whether through private equity funding, additional credit sources such as asset-backed lending, or freeing up capital from non-core or underperforming business units to invest elsewhere.

Alternative funders are becoming more prevalent, filling a funding vacuum left behind by the traditional clearers and others that have exited the market – and the UK funding market is moving increasingly into the mainstream as an alternative to traditional sources of finance.

Accordingly, Grant Thornton is increasingly helping clients to source alternative funding for growth. In the past 12 months, for example, we have:

  • advised on the management buy-out (MBO) of sensor manufacturer Sensortech, backed by Baird Capital, with funding from Beechbrook Capital providing unitranche facilities.
  • provided financial, commercial, operational and management diligence services to NBGI Private Equity in its acquisition of McCambridge, with debt funding being provided by PNC Business Credit and Beechbrook Capital.
  • advised Pricoa Capital Group in the MBO of Just Cash – one of the first sponsor-less types of structures that Grant Thornton sees becoming more prevalent in the market, with funding being provided by a UK private debt institution.

Additionally, the management team of Milton Keynes-based YourCash Ltd, a leading provider of ATMs in Europe, acquired 100% of the company, supported by funds provided by Pricoa Capital Group, one of the largest capital providers to companies worldwide. Grant Thornton advised Pricoa on the transaction.

Tim Blois, Director, Corporate Finance, at Grant Thornton, says: “It’s good to see more funding options coming into the market to supplement government-led initiatives, such as Funding for Lending – the scheme launched by the UK Government in 2012 to encourage banks to increase lending to businesses. However, there is a greater issue of flow of credit from funders, rather than just the price of it.

Businesses should be looking at all their funding options, and be more open about their debt and equity options. While shareholders are reluctant to give up equity, an increasing number of growth investors taking minority equity stakes, such as the Business Growth Fund, allow businesses to secure an appropriate mix of debt and equity to support their growth plans.”

For further information on a range of alternative funding sources, visit our Raising Finance page. 

Or contact, Tim Blois, Director, Corporate Finance, on 44 (0)1223 225530 or at tim.m.blois@uk.gt.com.

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