Still funding for right ideas

Oct 15 2008 By Martin Hulls for The Journal

EXPANDING a business is not an easy task, especially in the current climate, so all members of this year’s Fastest 50 deserve our heartiest congratulations for their achievements.

However, as they will all doubtless acknowledge, this is not the summit of their endeavours but a staging post along the way. Those who have made it this far will want to go further.

How can they go about this?

Growing organically is how many of the Fastest 50 class of 2008 have achieved their place on the list.

Using your cash reserves is one way to finance such growth, but if you prefer not to eat into your capital or it has already been used up, securing external investment is a must.

With the credit crunch biting, access to growth finance is perhaps not as straightforward as it used to be, but there is still funding available to companies with the right management, the right ideas and a good track record. Now, more than ever, the likes of banks, venture capital firms and high net worth individuals will only want to put their money behind businesses that are already successful, but have a desire to go further and a clear vision of how to get there.

A stock market flotation may not be flavour of the month, but it
won’t be too long before it becomes an option again for the right
kind of business, so which of these options would be best for your company?

If it is via bank funding, how should a loan be structured to fit your cash flow? Are you prepared to sign over part of your business to a venture capital firm and what happens when that firm wants to cash in on its investment? Such questions are vital.

Growth by acquisition has been popular in recent years as businesses acquire competitors to boost their market share and take advantage of economies of scale.

With finance tighter and some companies finding the credit squeeze harder to take, businesses on a stronger financial footing may be in a better position to pick up rivals at more competitive prices. Choosing the right target, negotiating the right price and planning for integration are vital for a successful acquisition.

With £843m of deals concluded in 2007 alone and a significant number of deals still being done despite the more challenging times, we
have a track record of helping secure the best for our clients in this
field.

On the other side of this coin, selling your business to a trade
buyer – either to cash in on your hard work or to move into a new venture – also needs careful planning and advice to ensure you get the
best deal. After all, no one wants to feel they are selling themselves
short.

Selling to your management team is another option, but they may need advice on picking the best funder to finance the MBO and on the future structure of the company. Our long experience of trade sales and MBOs leaves us well placed to advise in such scenarios.

A stock market flotation is
another option for companies looking to grow and increase their profile. Becoming a plc opens up additional access to capital and allows companies to use shares to fund acquisitions, although you need to be prepared for the additional rules and regulations which public companies need to abide by.

Many growing companies choose to list on the Alternative Investment Market (AIM) of the London Stock Exchange.

Ward Hadaway has advised businesses including Romag, Tanfield Group and China Goldmines on their AIM flotations and now acts for more than half of North East plcs.

If you are serious about going for growth, give us a call and we will help you plan your next steps for success.

For information on issues raised by this article, or on any other aspect
of corporate finance, please contact Martin Hulls at martin.hulls@wardhadaway.com or on (0191) 204-4215.