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© 2014 Grant Thornton Ireland. All rights reserved Sources of finance available to Irish SMEs and how to access them 13 May 2014 Michael Neary Partner,

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Presentation on theme: "© 2014 Grant Thornton Ireland. All rights reserved Sources of finance available to Irish SMEs and how to access them 13 May 2014 Michael Neary Partner,"— Presentation transcript:

1 © 2014 Grant Thornton Ireland. All rights reserved Sources of finance available to Irish SMEs and how to access them 13 May 2014 Michael Neary Partner, Corporate Finance

2 © 2014 Grant Thornton Ireland. All rights reserved. Overview of presentation TopicTime Presentation on SME financing 8.30 – 9.55 Break9.55 – Case Study10.10– 11.00

3 © 2014 Grant Thornton Ireland. All rights reserved Introduction

4 © 2014 Grant Thornton Ireland. All rights reserved. Economic outlook for Irish SMEs Positive Negative Current Account Surplus GDP forecast to increase by 2.1% Irish bond prices to continue to fall relative to Bunds Unemployment continuing to fall Upcoming stress tests Increase in spreads – despite record low interest rates Lack of recovery in domestic economy Continued recovery of house prices

5 © 2014 Grant Thornton Ireland. All rights reserved. Match Finance to Business Stage R&D Start-up Early Growth Fast Growth Sustain Growth Maturity Founders Business Angels Venture Capital Public Sector Debt Corporate Venturing Public Listing/IPO Private Equity

6 © 2014 Grant Thornton Ireland. All rights reserved. Banks - SME-orientated funding schemes National Pension Reserve Fund – Irish Strategic Investment Fund Private equity funds ISEQ Where can SMEs tap into finance? Bank PE Govt

7 © 2014 Grant Thornton Ireland. All rights reserved Bank funding

8 © 2014 Grant Thornton Ireland. All rights reserved. Bank funding for SMEs Bank of Ireland – pledged €12 billion to SMEs over the next five years –"very much open for business" AIB: Range of SME funds launched in 2013 –€200 million EIB SME loan fund –€200 million renewable energy fund –€50 million agri loan fund

9 © 2014 Grant Thornton Ireland. All rights reserved. Advantages of dealing with the banks No Equity Cheaper than alternative sources of funds Can be used as part of a package Development of a partnership Full range of products

10 © 2014 Grant Thornton Ireland. All rights reserved. Disadvantages of dealing with the Banks Over leverage risks Restrictions on receipt of funds "Slow no" Risk adverse nature of banking Inflexible

11 © 2014 Grant Thornton Ireland. All rights reserved Private Equity

12 © 2014 Grant Thornton Ireland. All rights reserved. Private equity providers active in Ireland SME orientated –BlueBay –Carlyle Cardinal Capital –Highland Capital Partners –Broadlake Capital –MML Growth Capital –Greencoat Capital –Proventus Capital Partners

13 © 2014 Grant Thornton Ireland. All rights reserved. National pension reserve fund FundNPRF Commitment 3 rd Party TotalFocus SME Equity Fund – Better Capital €50m €100mTurnaround fund SME Equity Fund – Cardinal€125m €250mSME equity SME Credit Fund – Blue Bay€200m€250m€450mLoans to larger SMEs CIC Technology Fund€72m€36m€72mChina-Ireland tech growth capital Innovation Fund Ireland€125m €250mEarly stage and high-growth Local Venture Capital Funds€81m€320m€401mHigh growth Silicon Valley Bank€36m€72m Technology innovation sector Irish Water€250m- Irish water Irish Infrastructure Fund€250m€66m€316mIrish Infrastructure Irish Forestry€35m€187m€223mInvestments in Irish Forestry PPP Schools Bundle 3€14m€121m Schools PPP N11€18m€165m Roads Committed to Date€1,257m€1,517m€2,670m

14 © 2014 Grant Thornton Ireland. All rights reserved. Lily O' Brien's First deal for Carlyle Cardinal c. €15 million Management likely to remain Revenues rose 40% in 2012 –Exports to 16 countries, inc UK, US and Aus. Strong online presence Operating profit of €1.5m in 2012 –Increase from €285k in 2011.

15 © 2014 Grant Thornton Ireland. All rights reserved. SMEs – Examples of deals involving private equity houses Acquisition MBO

16 © 2014 Grant Thornton Ireland. All rights reserved. What are Private Equity looking for? Businesses with capacity to grow A deleveraging, acquisition, growth capital or shareholder reorganisation opportunity Strong management Good MIS and strong cash flows Value creation opportunities

17 © 2014 Grant Thornton Ireland. All rights reserved. Venture capital funds Atlantic Bridge BOI Seed and Early Stage Fund AIB Seed Capital Fund Enterprise Ireland Investec Delta Seroba Kernel

18 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with PE/VC– Advantages Assist with Involved in setting business strategy / direction Flexible and alternative form of finance / capital structures – mezzanine, junior loans Increases refinance, acquisition or cash extraction capability Incentive structures for management teams Possible solution to succession issues Access to new markets or expertise

19 © 2014 Grant Thornton Ireland. All rights reserved. Deal with PE/VC Disadvantages Owners giving up equity New board directors / greater corporate goverence More financial information requirements Exit timeline Due Diligence requirements

20 © 2014 Grant Thornton Ireland. All rights reserved Accessing finance

21 © 2014 Grant Thornton Ireland. All rights reserved. What documentation is required for raising finance? Typical requirements: –Business plan –Financial projections/assumptions –Management team –Unique product or service –Financing strategy

22 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising Finance – Preparing & Planning Which source best fits? –matching principle Bankable proposition? –well thought out plan –key risks identified and understood –healthy cash-flow & security available for debt If not bankable, what about equity provider => VC etc? How will funds be repaid? Process of Raising Finance

23 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt/equity Finance - overview Prepare and plan Document Business Plan Information Memorandum/Report with Financial Projections Approach potential funders Term sheets Due diligence Final legal documentation Process of Raising Finance

24 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt Approaching lenders –Gauge interest –meet and present case –communicate your knowledge –ensure the message in the Plan is communicated –provide copy of Business Plan and Projections Sources of Finance

25 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt Term sheets –Offers received –Term sheet outlines key details: 1.interest costs / margin 2.fees 3.security Assess terms from different funders Seek clarification if necessary – fill gaps Sources of Finance

26 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt Cash-flow assessment – trading business

27 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt Due diligence / Independent business report? –Financial => focus on figures, cashflow Legal => assess securities, etc Sources of Finance

28 © 2014 Grant Thornton Ireland. All rights reserved. Process of Raising debt Letter of offer/ Facility Letter –Outlines facilities and interest rates –Notes security required –Outlines financial covenants (interest cover,DSCR, etc) and general covenants –Representation and warranties from borrower Sources of Finance

29 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers: Overview of the process Prepare an information memorandum Contact private equity providers Present Receive offers Negotiate and second round offers Accept offerDue diligence Final negotiations and deal close

30 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers What should an information memorandum contain? Detailed written description of the target (often 50+ pages) Primary marketing document Contents: –Company overview –Operations overview –Industry overview –Financial information – historic and projections

31 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers What are they looking for? Historical financials –EBITDA; maintainable, repeatable Cash-flow –strong working capital Debtors – tidy up Projections Management team Potential for exit

32 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers What to expect from an offer letter Offer amount rationale –i.e. why the private equity company wants to partner with your firm valuation of the target company on a cash-free. debt-free basis outline of how the deal will be financed Maintainable EBITDA Conditions of offer

33 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers Due diligence Purpose of due diligence –to confirm the information on which the vendor has based its bid Three possible outcomes: –no issues discovered –some issues are discovered but remedied –issues are discovered which cannot be remedied and bring the deal down.

34 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers Issues typically arising from due diligence Revenue recognition Deferred revenue Accounting policies Aged debtors and provisions Forecasts and assumptions Capex

35 © 2014 Grant Thornton Ireland. All rights reserved. Dealing with private equity providers Closing the deal Post due diligence –offer may be revised Deal may fall through if both parties cannot agree

36 © 2014 Grant Thornton Ireland. All rights reserved Case study

37 © 2014 Grant Thornton Ireland. All rights reserved. Case Study I: Software company Business: –Irish software company Purpose of funds: –Raise growth equity to fund expansion Structure of transaction: –Newly issued series B shares Funds were used for: –Repurchase of stock from existing shareholders

38 © 2014 Grant Thornton Ireland. All rights reserved. Case Study I: Software company Issues/areas of focus for P/E Investor –Pipeline sales & customer –Forecasts/projections & assumptions –Management experience and plans –Growth and acquisition strategy –Product/technology capability

39 © 2014 Grant Thornton Ireland. All rights reserved. Case Study I: Software company Outcome –Successful due diligence process –Comfort around risks –Solid numbers (projections and assumptions) –Quality management team in place –Successful deal close

40 © 2014 Grant Thornton Ireland. All rights reserved Your advisor

41 © 2014 Grant Thornton Ireland. All rights reserved. The Advisor? What value does the corporate finance advisor add? Would the company secure the same funding if they negotiated on their own?

42 © 2014 Grant Thornton Ireland. All rights reserved. The role of the Advisors Provide realistic advice from the start, and advise on the options available Financial Projections – specialist model - assist management in determining their assumptions - build tailor made model to construct projections based on management’s assumptions Business Plan going forward - advise management on writing their business plan - complete the plan into a presentable report suitable for meeting funder’s requirements

43 © 2014 Grant Thornton Ireland. All rights reserved. The role of the Advisors Utilise contacts within funding institutions – eg banks, VCs Assist with approaching funders, and presenting teaser document and/or business plan Demonstrate stronger points to funders Negotiating the best terms: –Debt => interest margin, etc –Equity/VC => level of dilution in exchange for investment Advice on comparing terms from different funders Assist in driving process to completion.

44 © 2014 Grant Thornton Ireland. Corporate Finance Michael Neary Partner T +353 (0) E Our team comprises corporate finance professionals who have extensive transaction experience across a large range of sectors and clients We bring commercial and industry knowledge, analytical skills and technical knowledge to each engagement Contact details

45 © 2014 Grant Thornton Ireland. All rights reserved. Questions & feedback


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