Is Private Equity Your Solution?

It could be. Of course there's no such thing as as a free private equity injection, but in general the blessings outweigh the curses. In the well known TV program Dragon's Den - part of the benefit of getting the funding is that the needful inventor also gets the skills of the investor. Would Regae Regae sauce really have made it so big if it were not backed by the expertise of Peter Jones and Richard Farleigh? The actual private equity is probably regarded as a small part of the success factor. If an investor thinks your company is worth investment in - it's a good signal that he or she has seen something in the company and perhaps it's management that is good and worth supporting.

Postive Solutions for a Business Suffering During the Recession

We like to be able to offer a good news story and Beer & Young, the UK’s leading provider of equity funding for small businesess, have year on year been able to help businesses experiencing difficulties. We have highlighted one such case below. It involves an historically successful 30 year old business, an entrepreneur who was planning for retirement but was caught short by the recession and all too quickly found his business in serious trouble.

Beer & Young’s solutions have stabilised the business, kept the confidence of the key stakeholders, particularly the bank, and should allow for an orderly and profitable exit for the entrepreneur in the next 2-3 years.

BESPOKE GLASS LTD

The business in question is a designer and manufacturer of bespoke glass rooms & furniture, catering for discerning customers. Turnover has returned to nearly £9 million this year, having suffered a major drop off of new business during the second half of 2008.

When Beer & Young were introduced, the creditor position had been untenable and was sitting at £4 million including £1million to the bank and £1million of clients’ payments on account.

Suggestions of pre-packs abound - we recommended that the business be preserved with a CVA together with investment.

The CVA has been passed with full support of creditors, offering 40p in the pound. Total write off unsecured debt £700,000.

A new investor was introduced who has agreed heads of terms that will allow the company’s principal to withdraw his Bank guarantee, have his loans repaid, and retain a decent slug of equity in the company. The investor will provide the necessary working capital, take ownership of the freehold property together with its bank debt and have a controlling stake in the company.

The business itself benefits from continuity, customers have not lost out and 95 staff have retained their jobs. Goodwill and value have been preserved and should trading continue to be positive, there is no reason why the company will not return to its historical position of generating significant profits year on year.

If you know of a business that is suffering and has a need for capital and maybe some re-structuring, please talk to Beer & Young. Investors are active in the turnaround market, businesses can be preserved and given the opportunity to recover, then return to profit.

Investing in Today’s Economic Climate

In today’s uncertain financial climate with Bank lending having all but disappeared, great volatility in the World’s stock markets and interest rates and inflation at record lows, private investors have limited options available to them when it comes to investing their capital for maximum returns. They can gamble that the worst is over for the major stock markets, if their interest is in quoted companies, or for the more adventurous they can enter the world of small to medium sized enterprises (SME’s) and become a business angel and risk all for the promise of larger gains and more excitement by investing in start-up situations, or take less risk and lower rewards with more established SME’s who require additional capital for growth.

There is, however, an alternative that offers the possibility of greater rewards, increased participation, if desired, and more personal satisfaction and often with reduced capital commitment for a greater share in the company concerned. This alternative is to invest in ‘Turnaround Situations’ with established companies that have been hit hard by the present economic climate and cannot raise the additional finance required from traditional sources.

The companies in need of this type of finance are typically those businesses that have traded profitably in the past but for one reason or another now have serious cash flow problems. This might be due to a major client going bust, slow reaction to increased competition, late introduction of a new product or just tired management, to mention only a few.

The overdraft may be sitting at its limit, the Bank is unwilling to help and the directors may be unable to offer more security. The balance sheet is often fully geared and there may be creditor pressure or just a need for more working capital to operate through a poor trading period. The problem could be even more serious with solvency issues to address. These are good companies that for one reason or another have got into difficulties but with fresh ideas and new capital could once again prosper.

Investors are drawn to turnaround situations not only for the financial returns but often because they have experience in the market, can see synergies with their existing interests and can add value, not only by investing their capital, but also by strengthening the management team and harnessing their own network of contacts. In other words they can see that they can make a real difference.

The existing management team are happy as they too can see the benefits of new management skills coupled with new capital and especially as turnaround investors usually are not looking to take over the business.

Companies that could benefit from this type of funding, however, do not advertise the fact that they need help and so to find these interesting situations it is necessary to approach one of the few companies that specialise in this area. One such company is Beer & Young Limited.

Beer & Young is one of the UK’s leading providers of equity funding for small businesses. We have been delivering business finance, turnaround finance and company rescue solutions to companies in the small and medium business sectors since 1998 and have worked successfully with a number of PKF partners during this time. We are transactional based and as such are solely focused on the task that we have been engaged for, after which our involvement comes to an end. We exclusively operate the largest network of private investors who are active in turnaround situations.

We raise new money, mostly in the form of equity funds from business angels. We provide quick (or additional) business finance capital for businesses and, where necessary, help with cash flow and credit problems to aid with company rescue. We operate nationally and are proud to be known for our immediate response. Our reputation for quickly delivering business finance capital should assist negotiations in relieving financial pressures with institutions and creditors.

Our Head Office is based in the City of London. We also have regional associates spread right across the UK. Our associates have a wealth of invaluable experience, typically having run their own businesses and so from personal experience understand the needs of entrepreneurs particularly when faced with cash pressures. The majority also have banking or accountancy qualifications.

Companies and management under critical pressure need help, support and in short, solutions. Most business owners would agree that new money would certainly help to resolve the issues facing the business - money alone doesn’t provide all the answers, but when faced with cash pressures it will help relieve these and provide confidence to other stakeholders who are being asked to support the business.

Investing in turnaround situations is not risk free, far from it, but the financial and personal rewards cannot be matched in any other investment market. It provides an opportunity to add skills, experience and contacts to smaller companies, at a stage when such support is most needed. There is no charge to investors to gain access to our carefully selected clients.

Cash Flow Solutions

Cash flow is the lifeblood of all businesses. As any small business owner will know, it is essential to be able to pay the staff, buy supplies/stock and to pay for the myriad other expenses with business finance. The problem comes when cash flow dries up. In most cases, when that happens, the first move should be to talk to the company’s bank. If the company in question has a good track record, a ’solid’ balance sheet and a reasonable order book, then the bank may well be able to respond. For example, the new Enterprise Finance Guarantee scheme under which the Government underwrites 75% of the loan to a business that meets all the criteria is, at last, yielding results, althoug the proportion being rejected is apparently much higher than for previous schemes.

It is when the bank has rejected an application for funds that the problems really begin. It then becomes essential for the business manager to know exactly where and what finance to look for, and how to present the case for funding in the best possible way. It is at this stage that, if the business owner/manager does not have experience in the world of commercial finance, things start to fall apart and business insolvency could follow.

The answer may be to find the best finance company to provide services such as invoice discounting or stock finance. Increasingly, however, the problem is one of escalating debt. In such circumstances the owner/manager will often find themselves spending too much time pacifying creditors and fighting off threats of legal action, whilst at the same time having insufficient capital to do the necessary marketing or even worse being unable to buy sufficient new stock.

Beer & Young Ltd can help by setting up an application for a Customer Voluntary Arrangement (CVA) on behalf of the company. This is a legally constituted agreement whereby the business undertakes to repay all of its creditors (at the time of the agreement) at an agreed rate over an agreed period of time. In return the creditors cannot press for earlier payment of the debt (unless the company defaults on the arrangement).

This action, of itself, can be enough to enable the business to recover. Alternatively, it may be combined with finding an investor to provide a capital boost. Investors are much happier to consider a company where they know that most of their capital will be used for growth and not for paying off old debts.

This article appeared in the Northampton Business Times.

Turnaround experts warn of bottleneck

The following article appeared in the Financial Times in early March 2009:

Turnaround experts are warning that there could be a wave of business failures later this year because they are unable to get to these companies quickly enough.

Companies that specialise in rehabilitating businesses believe that they are only seeing a fraction of the companies in trouble because the sharp down-turn has left banks-which would normally refer cases to them for business finance -feeling overwhelmed.

The main concern is with companies in the £10m to £100m bracket, which lack the funding to employ turnaround experts who can work alongside management to restructure the business.

Christine Elliot, chief executive of the Institute for Turnaround, predicted that the problems with these businesses could ‘come home to roost’ in the third quarter of this year and into 2010.

“Members who deal with the mid-market are not getting to tackle some of the problems they know are out there” she explained.

Steve Benger, turnaround director at RFP Management, an independent practitioner, said: “My colleagues and I have got quite frustrated”.

An increasing number of accountancy and law firms are employing people with experience of turnaround work to help struggling companies recover before being pushed into insolvency.

Two thirds of insolvency specialists are involved in the restructuring or turnaround of struggling companies, according to R3, the sectors trade body.

Private equity firms are also getting in on the act. Beer and Young, for instance, claims to have a network of 1,000 business angels who offer their experience and money to breathe new life into struggling businesses.

Declan Williams, director of business recovery at Beer and Young, said: “Investors have always liked turnaround because they are perceived as less risky than investing in early stage businesses”.

But turning to new investors is not always attractive to business owners, who have to dilute their share holdings as well as admitting to their mistakes. “Most entrepreneurs have 100 percent of a lot of problems when they come to us” Williams said. “Much better to have 30 percent of something of value in the future”.

Alternative finance for businesses in distress

What’s the answer if the cash flow has hit a brick wall and the bank has withdrawn any possibility of re-financing, or if your invoice discounting factoring options have disappeared? Even if the situation seems hopeless, there are still options open to you – but it’s best to know about them in advance rather than trying to find out what can be done at the eleventh hour. Experienced investor equity specialists like Beer and Young can help distressed companies find their way out of the darkness and back into the light.

Finding your way out of the woods
With the UK now formally in a recession and the real possibility of a prolonged downturn growing, many business owners will be asking what impact this will have on them and their ability to raise money when they need it. It has become extremely tough for all but the largest and most successful firms to obtain new bank funding. The government has tried to address the situation by re-capitalising the banks but there is no guarantee of how much of this cash will eventually flow into small companies – or when they will get access to it.

The good news is that there are alternatives and one of the best and easiest to access is investor equity. By far the largest investor network is managed by Beer & Young, a City of London-based Company, now in its eleventh year of trading, with a nationwide team of associates who are experts in raising equity finance. This network comprises over 1,000 private investors (sometimes referred to as Business Angels), all of whom have an appetite for investing in distressed and turnaround companies or those who have an urgent need for new capital

And their appetite to invest has not been quelled by the current downturn – indeed, they very much see the current situation as one in which many good new opportunities are likely to emerge. Over the past six months, investment sums ranging from £100,000 to £3 million have been made available.

Because of the scale of the network there is a solution for trading companies across all sectors nationwide. Typically these firms have turnover of £1 million up to £20 million.

Equity investment may not be for everyone of course. One of the perceived downsides is that the business owner has to give up some equity, which may be painful. But others see this as more palatable than no solution at all. After all 100 per cent of nothing doesn’t amount to a lot! Investors are looking to back committed management teams and generally do not want to take over the company. Hence it is rare that they will require a majority shareholding.

In addition to injecting new capital they can also add huge value in terms of their experience and contacts in the industry they are investing in. They are high net worth successful business people.

An All Round Solution

Many problems in business are exacerbated by the reluctance of owners to face up to the real issues. But when a Bank decides it cannot lend more, owners have to rethink their strategy, which can lead to surprising results.

Beer & Young, the turnaround equity experts, often find that equity is only part of the solution – an Angel’s management skills and contacts may be more important than their money.

Equally, working with Beer & Young to present a case to investors can be the catalyst for a fresh approach, forcing owners to look objectively at both the business and their skills.

Outlined below is a case (names have been changed) where introduction of Beer & Young resolved the company problems without the need for equity.

MIDAS
Midas had two separate aspects to its business, marketing and publishing. Cash flow was tight and business difficult. Elaine, the owner and director, was concerned about her personal position. She was introduced to Beer & Young by her financial advisers because:

• Turnover was £1,500,000 pa and dropping
• Bank debt was £150,000 ,fully supported by Elaine’s personal guarantee
• The Bank was concerned about the credit and wished to reduce their exposure
• Management control of the two separate businesses was difficult and very stressful especially as Elaine’s skills were in marketing not publishing

Beer & Young were able to resolve all the issues:
• We found an investor wanting to merge the marketing business with his own. Unfortunately he did not want the publishing business.
• Midas instructed Beer & Young to sell the publishing business.
• We found a purchaser who bought the publishing business for sufficient to repay the Bank borrowing completely together with some of Elaine’s personal debts.
• With no debt and only one business to run, Elaine declined the investor offer and returned the marketing business to profit on her own.

Are Business Angels Still Investing?

The current lending environment is the most difficult that the majority of businesses have ever experienced. Banks are being understandably cautious as the country enters recession.

Beer & Young, Turnaround Finance Specialists, keep pointing out that raising equity is the best alternative for many businesses. Angel investors have a higher risk threshold than banks and new equity strengthens the balance sheet.

But are Business Angels still investing in the current climate? The high number of our cases that have completed and are nearing completion is clear evidence that they are.

The example below (names have been changed) is one of our most recent completions. Beer & Young have found funding for this undercapitalised business supplying the retail sector.

ABC SUPPLIES

David had worked for 20 years sourcing clothing when he decided to develop his own brands. The business designs and supplies high quality equestrian and country clothing to 250 retail outlets across the UK. When David approached us his position was:

• He had remortgaged his home and injected more than £150,000 into the business which was high margin and profitable.

• The Bank overdraft was £30,000 and would not be increased.

• Debtors were already factored and trade finance facilities had been refused.

• He could not fund his new season stock from the Far East and Portugal.

Beer & Young were contacted from our website and arranged:

• Three investor meetings.

• Two offers of equity investment were received.

• The offer, involved a £230,000 injection of new funding from the investors, a mix of equity and unsecured loan funding.

• An additional funding line of £100,000 will be available dependent on performance.

Crisis Management in the SME Market

One of the most challenging questions for any owner/manager in a small company is ‘how to deal with a financial crisis?’ e.g. the cash/overdraft is about to run dry/hit the limit and creditors are banging the door down. It would be pretty unlikely that the business plan (if there is one) identified the likely crisis and more importantly a strategy to deal with such a scenario.

It is not surprising that entrepreneurs always see the glass as being half full and therefore planning for a crisis is not be on the agenda. However, in reality things can always go wrong and often through no fault of the management/business owners e.g. a bad debt can easily wipe out your profits and put a business in a vulnerable position.

The key factor in a distressed situation where you are facing a cash crisis is to stay in control. This is of course easier said than done, as when the pressure mounts it is easy to end up ‘fire fighting’ and often the help that you presumed would be there simply melts away.

Sometimes ‘shutting up shop’ seems likely the only answer, but rarely is there a situation where a more positive outcome cannot be achieved by simply reviewing all the options available. In the last 10 years specialist firms have emerged to specifically help SME owner/managers in these circumstances. The solutions available will often involve putting workable recovery plans in place and introducing new investment into the business to restore financial stability.

Business Angel Funding - An Effective Alternative

With widespread media coverage of the so called ‘Credit crunch’ and the sudden reduction in the general availability of loans along with the increase in the cost of obtaining them from the banks many businesses are looking for different forms of funding.

Increasingly, ‘business angel’ funding is being sought as a very effective alternative, with experienced entrepreneurs being willing to invest not only their money but a wealth of experience into companies that are fundamentally successful concepts but in need of a financial turnaround.

Beer & Young are the market leaders in turnaround funding in the UK and despite the current economic climate have successfully completed a number of deals during the summer months which have given companies a new injection of cash.

One such company to benefit was a Midlands based franchisor that had only been trading for a few months and was showing enormous potential, however it had technical problems with the design of the vending machines; plus the franchisor’s original business partner had problems of his own, that meant he could no longer supply development capital for the business. As a result the sales of new franchises had ceased, vending income was slow in starting-up and the company was in dire financial straights.

Beer & Young were able to introduce a private investor who not only provided the necessary cash, but who also took a significant management role, to replace that of the former partner (who was bought out). The cash injection allowed the company to pay off its most urgent creditors, improve the product offering and, with the continued help of an IIB consultant, to restructure the rest of its debt, so that it could continue to expand at its former rate.

Some good news for SME’s today!

Whilst the banking community tighten their belts, it is clear that the business angel work is very much alive and active.

There is much doom and gloom in the newspapers at present and predictions are all offering tough times ahead for business community. And the ones that always seem to get hit first are the small businesses! Whether it’s a lifestyle business or a company employing 100 staff, the squeeze is on from the banks and that can lead to cashflow problems.

However there are some positives out there for those who seek them.

Specialist business angel networks that operate in the turnaround sector of the market are commenting that actually that there is more and more activity and money is available for the right businesses. Not all business angels operate like those on Dragon’s Den! Most are looking to add value to a business as well as invest their own money. Most are not looking to take control, they are backing the management team.

If the business has the potential to make profits in the future, the wise business owner will search for the active turnaround business angel networks and see what’s on offer.

Leading Turnaround Network opens new offices in Birmingham

Read any business newspaper these days and it is difficult to avoid references to negative equity, higher prices on food and petrol and or course the credit crunch. As the economy threatens to move into recession and banks tighten their lending criteria many Birmingham businesses are struggling to raise business finance and in some cases are seeing their credit lines withdrawn altogether. It is therefore refreshing to hear a good news story which will benefit thousands of business in and around the Birmingham area.

Beer & Young, a national company with Head Offices in the City of London, specialises in raising new capital quickly for companies experiencing cash flow pressures, creditor problems and banking difficulties. The company which is celebrating its tenth anniversary this year is opening a new Birmingham office with the aim of helping the growing number of businesses in Birmingham and the surrounding areas who are cash starved as a result of the current trading environment and credit crunch.

Nicholas Young, Managing Director, has noticed a sea change in the needs of clients in 2008. “Over the past few years the market has been awash with easy and cheap credit but now we are seeing clear signs that the credit crisis which has hit the property market hard has spread to the small and medium business. More and more companies tell us that whereas last year the bank would normally extend the overdraft to ease a temporary cash flow today bank managers more likely to review the overdraft limits downwards, thus adding to cashflow pressures.

To meet the growing demand for equity B&Y has opened a new office located on the Birmingham Business Park near the NEC and a Regional Director, Brian Rutter has been appointed to spearhead this expansion. Brian says “we definitely want to hear from those companies who are experiencing cashflow difficulties for whatever reason this might be. We will always offer simple and practical advice and can raise new equity based capital quickly via our extensive network of over 1000 investors or business angels.

“We are also keen to hear from professional introducers who wish to work with us. B&Y has built its business almost entirely by personal referral and are comfortable working with bank managers, asset based lenders, accountants and consultants. We are definitely not in competition with these companies; indeed our belief is that we have a win, win, win situation. The client receives new equity capital and the bank/lender, accountant and consultant retain a successful client.”

Business Finance - We are living in a ‘Recovery Culture’

June 2008

The first few months of 2009 will be remembered as a period of significant financial turmoil as the impact of the global credit crunch has been felt across the worldwide financial system. The impact on business finance for small and medium sized businesses has been felt in the past few months with liquidity becoming an increasing challenge.

The good news, however, is that the ‘recovery culture’ that has been established over the past 10 years or so, now seems to be fully embedded within the financial services sector. Institutional lenders are generally receptive to sensible recovery solutions and will not simply ‘pull the plug’ at the first sign of trouble. The bad old days of the late 1980’s and early 90’s seem to be well and truly behind us.

It should be noted that we also have to give the government credit where it is due and say that legislation and the attitude of HM Revenue & Customs (HMRC) has played its part. Their supportive and more flexible remit has seen them being prepared to agree repayment proposals when arrears have built up. Although HMRC don’t like transactional taxes (VAT/PAYE) being used to fund working capital requirements, they will often allow businesses the opportunity to trade their way out of a difficult period – plus there is little incentive to crystallise a ‘loss’ when a recovery plan looks viable.

We have also seen the emergence of specialist firms that provide effective recovery solutions for distressed businesses. These are not traditional Insolvency Practitioners but firms made up of experienced professional advisers who look to put recovery plans in place. These can often include the introduction of new ‘business angel’ investment, which provides the financial catalyst for ‘real’ recovery.

The emergence of the internet and the availability of information online have also positively impacted on the ‘recovery culture’. This can often be the route to find the specialist help and services that are needed when financial distress is encountered – asking your accountant or bank manager is no longer the only option.

A WINNING COMBINATION

SME BANKING RELATIONSHIP MANAGERS + BEER & YOUNG - THE CATALYST FOR BUSINESS RECOVERY
We all need a little extra help sometimes – even some of the biggest banks in the world have had to raise business finance in 2008. But where do SME’s turn when the going gets tough and additional capital is needed to re-build their depleted balance sheet? This is where Beer & Young can be the answer. Since 1998 Beer & Young has been acting for undercapitalised SME’s who have often reached a critical point in their banking relationship. Beer & Young is focused on investor backed recovery solutions – the typical Beer & Young investor will be an experienced ‘Business Angel’ willing to invest in a turnaround situation or simply where urgent funding is required. Beer & Young is delighted to have forged close working relationships with many relationship managers across the banking community. Some, but not all, operate within the business support/special situations departments of the bank. The common characteristics of the accounts that are being managed tend to be:

Profitability has deteriorated and/or losses are accumulating

Liquidity is poor and the bank facilities are increasingly ‘hardcore’

Gearing has reached a tipping point where the bank is no longer comfortable

The above could be described as the ‘hard issues’, but financial ‘fire fighting’ takes an inordinate toll on business owners in terms of emotional energy and commitment. The old adage of ‘trying to see the wood for the trees’ is often very pertinent. This is an area where the hands on help and experience of a Business Angel investor can be invaluable. We all know about the problems that the global credit crunch has caused, but this has not affected the investor appetite for SME opportunities. Business Angels will make their own decisions as to how and when they invest – they see investing in businesses that have been successful in the past as far less risky than early stage/start-up situations. This is a counter cyclical market, where there is increased liquidity for turnaround/distressed opportunities. The upside for bank relationship managers is that there is access to ‘Business Angel’ funding for SME’s via specialist firms such as Beer & Young. We are always pleased to talk to bankers to explain our services more fully and listen to the views of front line lending managers.

Please contact our London offices on 0207 329 6886 to arrange a convenient appointment – please ask for Kylie van den Berg (kylie@beerandyoung.com),


Nick Young (young@beerandyoung.com), or

Declan Williams (williams@beerandyoung.com).

Article: Business Times Northampton

The following article appeared in the Northampton Business Times of 17 March 2008:

"Financial distress through to Business Finance in the SME sector"

There are few things that are more challenging for entrepreneurs than constantly having to engage in financial ‘fire fighting’. A company with cash flow problems will be juggling every cheque it receives in an effort to stay within the overdraft limit, pay its creditors, maintain supply, and on top of all this pay overheads and salaries. As well as being extremely stressful, this distracts SME business owners from the really important issue of keeping the customers happy – getting products out the door or delivering the services that they should be.

There are many businesses that find themselves in this situation but simply haven’t got the appropriate skills to deal with this level of distress. This is not a criticism, directors don’t plan for the company to ‘hit a financial brick wall’, but will often leave it very late before seeking the help that is available.

The good news is that there are some well established specialist firms, like Beer & Young Limited (established 1998), who can provide robust recovery solutions, which will often include the support of ‘business angel’ investment. This presents distressed businesses with an opportunity to recover with the benefit of an experienced entrepreneur who will also make a financial commitment. This is viewed as less risky by many investors as they see troubled businesses have been successful in the past, and with the injection of some fresh capital and expertise they can be successful again.

The key is to try and stay in control of the situation and seek help quickly. Major stakeholders (including banks and HMRC) are supportive of sensible recovery plans based on sound professional advice.

Please see the Beer & Young website: www.beerandyoung.com/case-studies.php for case studies and testimonials. They can also be contacted direct on 0207 329 6886.