Follow our lead
Acquisitions, buy-outs, mergers: no two transactions are the same. However, having been in the game as long as we have there’s not a lot that we haven’t seen. We have summarised some commonly asked questions below, but if you have any other queries please don’t hesitate to get in touch.
When raising growth capital do I have to give away equity?
The answer to this is very much ‘it depends on your business’. Given the opportunity to meet with you, we will spend time appraising your business and be able to give you a clear idea very early on as to the likely sources of funding that will be available to you and your business and indeed the most appropriate source of finance. This might involve debt product(s) exclusively, equity or a combination of the two.
Our appraisal will be driven by an understanding of a number of factors including; the nature of your business, its key commercial drivers, stage of development and the strength of your balance sheet.
Couldn’t I just raise the finance myself?
Preparing your business for investment is crucial, as is tailoring the key messages to potential funders according to the type of finance that is most appropriate for your business. A specialist corporate finance advisor will assist you to build a robust investment case that appeals to prospective investors and gets key commercial messages across concisely and in a way that appeals to those appraising the opportunity.
Once we have their interest, we will help you to negotiate the terms of funding offers using our many years experience as a benchmark against the terms on offer.
Our experience suggests that fundraising processes can be complex and time consuming, we also work hard to take away as much of the responsibility for these crucial elements from you to allow you to focus on running your business.
How much of the funds raised will you take in fees?
We are not brokers and we don’t work on fixed percentages of funds raised.
The fees we quote to you will be based on a combination of:
- The amount of work required to advise and guide you through the process
- The amount of value we will add throughout the process
- The level of complexity of the process
If, once we have met with you and discussed your business and your requirements, we think you can achieve a better funding outcome more cost effectively than using our services, we will tell you. It may be that we can help you from another element of the BHP practice.
How can the management team manage to buy the Company as they have very little spare cash?
Whilst every deal is different, the cash invested by a management team is usually a very small percentage of the total deal value.
The actual amount they will be required to invest typically ranges from £50,000 to £100,000 each and will be determined by:
- The price
- The deal structure and how the rest of the deal price is being funded (secured and / or unsecured bank debt, private equity, the seller agreeing for some of their proceeds to be paid over a fixed period of time are examples)
- The commitment the seller and / or the funders want as comfort from the MBO team
- Each individuals personal financial circumstances
In circumstances where the MBO team have little or no cash some advanced planning with us can help to address this potential hurdle.
Once we understand the potential deal this is one of the first areas we would provide you with specific guidance on.
Will the MBO team need to give personal guarantees ("PG")?
This will vary deal by deal but if the MBO team are investing some funds of their own, this is unusual unless the deal is being financed using Invoice Discounting. In which case a small PG is usually required. This is one area where we will help you get the best possible deal terms.
We don’t have a Finance Director but our book-keeper is very good at producing numbers. Will that be acceptable to funders?
A key requirement for nearly all funders will be the production of timely and accurate financial information both backward looking but importantly forward looking from a cashflow perspective. Having a robust plan in place to make sure this happens will add credibility from a funders perspective whilst helping to protect the MBO team.
In Private Equity transactions the appointment of an Finance Director pre deal or within a short time frame post deal is nearly always mandatory.
How do BHP get paid?
All initial meetings are always free. Following this initial meeting we will provide you with:
- Our initial view on price, potential structure and the investment required from the MBO team
- Likelihood of successfully raising the finance needed to complete the deal
- Suggested time frames to complete the deal
We will then provide you with a fee proposal which will take one of three forms:
- Fully contingent on a deal happening. If the deal does not complete we do not get paid.
- Largely contingent but with an element of a commitment fee payable on signing our engagement letter
- A monthly fee based on the time we spend on the deal at pre agreed hourly rates
Why do I need a Corporate Finance advisor I already have a good commercial lawyer?
A good Corporate Finance advisor with lots of Private Equity experience will pay for their fees several times over whilst also greatly increasing the likelihood of the deal completing. The Corporate Finance advisor role is far more wide ranging than the legal role and will include:
- Negotiating the key commercial terms to get you the best overall deal. Deal structures can vary greatly and the highest price or highest retained shareholding is often not the best overall commercial deal
- Assisting you on negotiating the definitions of “net debt” and “normalised working capital” so your net proceeds are maximised. This is the most common area where poorly advised individuals give money away
- Helping you to select the best possible equity house for your needs, not one of small number you may already have been made aware of
- Presenting to you the overall returns you can get from a deal and suggesting alternative structures that may better meet your requirements
- Concentrating on negotiating only the points you can influence / change. For other points ensuring you understand the logic and commercial protections you have and why equity houses will not negotiate on them
- Carefully managing the flow of all information and all communications with the equity house both pre and post agreeing heads of terms to maximise the chances of the deal passing through due diligence without any changes to the key commercial terms
- Project managing the deal so you can concentrate on running the business and ensure that the trading performance does not take a dip during the process
- Working with all parties to find innovative solutions to legal and commercial issues which may arise during the deal process
Will I get all my proceeds day 1?
This will depend predominantly on four things:
- The actual and perceived dependency on you as an individual
- The strength and depth of the wider management team
- The strength of your current and expected future market position
- The visibility over future revenues
If you have properly planned in advance of the investment being made you should be able to get all your proceeds on exit whilst maximising the valuation. The most successful Private Equity deals we work on are where the current owners began the planning process with us at least 18 months ahead of a planned transaction.
I know there are one or two gaps in my management team, will this put private equity off?
It is quite common for there to be at least one gap in the management team and private equity investors are used to working with companies to identify suitable individuals to join the management team either pre or post deal. It is however important that the majority of the team have been in place for at least 12 months ahead of any deal happening.
I would not want the business to end up with lots of debt as part of any deal, is this a problem?
Deals can be structured in a huge variety of ways. We take time at the outset to understand what is important to you so we can then ensure that any offers we do receive meet your specific requirements. We will also take time to robustly challenge you if we believe there may be a more beneficial way of structuring a deal.
Is Private Equity expensive money?
The short answer is yes. Private Equity usually seek to earn a minimum of two to three times their initial investment over a period of three to five years.
This means you need to carefully consider why you want the money and what it is to be used for. In the right circumstances it can be a great solution. Some examples of where it is can be an ideal fit include:
- Providing a 100% exit (at full value) for the current shareholders via a sale to the management team
- Allowing the current shareholders to sell a stake in the business in order to personally de-risk. This can often give the shareholders the confidence to then pursue their future growth plans with more confidence as they no longer feel they are risking everything they have built up
- Providing growth capital where the banks are unwilling to fund all or some of the planned investment. In these circumstances private equity can often accelerate the investment. This can allow companies to seize on market opportunities which in many circumstances may not be cash generative in the short term but which will be significantly value enhancing in the medium term
Will I have to give up a majority stake if I do a deal with Private Equity?
Each private equity firm is different and as a result the equity percentage they will want to own post deal can vary significantly. Their ownership percentage can be anything from a small minority shareholding to a significant majority shareholding depending on the nature of the deal, the PE firm’s approach and view of the business and your own objectives.
I have been told that the private equity offer that values my business at the highest amount may not be the best financial deal for me. How can that be true?
In addition to the headline valuation there are a vast number of other areas it is very important to understand before you decide whether or not to proceed with any offer you may receive. These will include but not be limited to:
- Cash received on completion
- Terms of any amounts rolled over (not received at completion)
- loan notes with or without interest versus just a retained equity percentage
- Terms attached to any “Sweet Equity”
- “Good leaver” and “Bad leaver” provisions
- Ability to provide follow on funding
- Proposed debt structure
We have vast experience of these areas and work with our clients to ensure we deliver the best overall deal for them and not just one where the headlines sound good.