Bishop Fleming Corporate Finance Newsletter - Summer 2008
welcome...
Welcome to the Summer edition of our Corporate Finance
newsletter. We have all been following the news about the
global capital markets, but what might this mean for our clients,
whether or not they are planning a corporate transaction? In this
issue we look at some of the likely consequences.
In 2007 we advised on 39 transactions, with a combined transaction value of £125 million. In the first quarter of 2008 we have already advised on a further 13 transactions, with a combined value of £62 million. A number of the later transactions were accelerated to take the benefit of the old regime for Capital Gains (of which more below). The changes in the CGT rules, restrictions on lending and the general economic climate undoubtedly mean we are, for at least the foreseeable future, working in a more challenging environment for transactions. The need to think laterally and develop more innovative solutions makes the appointment of the right advisors even more important. Deals are still being funded, and good, well-presented, realistically-priced businesses will still find buyers and the funds to support those buyers. We look forward to an interesting year.
Business finance – new world / new structures
The global credit crunch may seem far removed from businesses in the South West, but there seems little doubt that this is having knock-on effects throughout the local economy. Businesses exposed to consumer retail, property, tourism and leisure may find that people want to spend far less. The current weakness of the dollar means that businesses exporting to America will be far less competitive. However, the weakness of the pound against the Euro has also made UK markets more accessable. Noone can predict with any certainty how deep the problems are, or how long they will last.
Banks are showing much greater caution over what they lend, how much they lend and who they lend it to. Since most businesses hit problems not because of lack of sales, or lack of assets, but because of lack of short-term cash, it makes sense to review your bank facilities before your business feels the effects of any wider economic problems.
Make sure that the finance you have matches the funding needs of the business. Match long-term assets (plant, property, purchased goodwill) with long-term borrowing. Use rolling facilities and asset-backed borrowing such as invoice discounting to fund working capital, and keep business overdrafts as your back-up for very short-term or occasional needs.
Banks like security. The more security they have for the money they have lent you, the happier they are, and generally the less they will charge you. Matching your assets to your needs uses the security in your business to best effect; your borrowings will be more efficient, and less vulnerable to the bank demanding a change. When banks are looking to reduce their risk and exposure, they will look first at companies that are running on short-term finance, or where the assets do not provide sufficient ready security. The best time to review your funding structures, or to renew or restructure your funding, is before you actually have to do it; if your bank makes the first move, you may find it much more difficult to refinance on terms that suit you.
If you want to know more, or if you want to review your current finance structure please contact a member of the Bishop Fleming Corporate Finance team.