Steve Currie, Andrew Lynn and Rachel Hayes – experts in raising private and public equity and debt capital at Alantra and N+1 Singer – discuss the range of capital options available to fast-growing businesses.
A record amount of capital is looking for a home. What does this mean for owners looking to access funding to help grow their businesses?
Andrew: It means business owners have unprecedented choice to achieve their objectives. Whether they are looking for funding to accelerate growth, make acquisitions, realise value created over time or even sell, private equity, institutional investors, debt providers, equity markets and major trade players are competing on a global basis to invest in or acquire high-quality businesses. Understanding which of these options is the most suitable will depend on where a business is in its development, what the financing will be used for, and how much control owners want to keep.
When do businesses choose to work with private equity?
Steve: Often, it’s when a business has demonstrated a track record of profitability (typically EBITDA over £1.5m) and has reached a point where the owner needs a meaningful capital investment to support transformational growth, be it launching new products, expansion into new geographies or making acquisitions. Private equity isn’t just about securing capital; it’s also about finding a partner who shares the vision of the owner and who will provide strategic, operational and industry expertise and hands-on support to grow at a faster rate than might otherwise be achieved. Private equity wants to make an attractive return for their investors over a three to five-year period, so they will also be focused on creating significant value for all shareholders.
Private equity is a key partner for management teams looking to complete buy-outs. There are different types of private equity investors, with some focused on working with management teams on their first round of institutional investment. As a business develops over time it will have different funding requirements from an investor. We regularly work with management teams who have achieved the objectives set with their first private equity partner but can still see great opportunities for their business as it continues to grow. A secondary management buy-out with a different private equity firm experienced in working with larger businesses will bring new ideas, fresh challenges on strategic direction and future exit strategy.
Are non-bank lenders now an established funding option for mid-market businesses?
Andrew: The last few years have seen the rapid development of non-bank lending (global multi-asset managers and debt specific funds, for example) to the mid-market. The advantage for business owners is that these lenders offer more flexible and tailored funding, therefore providing the ability to unlock capital or access growth finance while retaining economic and executive control. Many owners are increasingly turning to alternative lenders when bank lenders are simply unable to meet their financing requirements or where private equity is not the right solution.
Why do businesses choose to offer their shares on the open market in an IPO?
Rachel: A stock market flotation can be a very effective choice for raising capital, creating and crystallising value. One of the key advantages is management control and freedom to execute on a strategy. Public markets are largely made up of a stable and passive investor base. Raising growth capital should be the primary motivation for an IPO (initial public offering), but it can also provide an opportunity for at least a partial sale by shareholders and investors. A stock market listing can also provide support for acquisitions, for example, through follow-on offerings to raise further growth capital, whilst attracting and incentivising management and employees. An IPO will undeniably raises a company’s profile and enhances its credibility with suppliers, creditors and customers, which can add a tremendous amount of value to the business in the long-term.
What do investors look for in an IPO?
Rachel: There is no single answer to this, but a differentiated offering will help companies stand out from the crowd. For small and mid-sized companies, growth potential will likely be the primary consideration, but other characteristics, such as disruptive technologies, market positioning, high and defensible profit margins and predictable, recurring revenues are all highly prized, with the ability to pay dividends an added bonus. Above all, public market investors look for strong management teams with a clearly defined strategy and (ideally) skin in the game, ensuring the interests of investors and management are aligned.
When do owners and management teams consider selling to a trade buyer?
Steve: Many trade players across different industries have significant cash available for M&A. Growth through acquisitions is a core strategy for them and the mid-market is often a preferred source of bolt-on opportunities. Deciding to sell to a trade buyer can be a highly effective way to partner with industry experts, access international markets, share IP and find support to develop and scale products and services.
Why choose Alantra and N+1 Singer?
Andrew: N+1 Singer and Alantra together provide clients in the UK with access to a unique suite of M&A advisory, debt and equity capital markets solutions. Steve Currie is a partner at Alantra and has worked at both private equity funds and corporate advisory firms over a 25-year career; I am also a partner at Alantra and have more than 25 years’ experience of the leveraged debt markets from the perspective of both a lender and an advisor; Rachel Hayes is a Director of Corporate Broking at N+1 Singer and has more than 20 years’ experience in the industry, advising on many IPOs and secondary fundraisings.
Rachel: N+1 Singer is consistently ranked as one of the top three financial advisers and brokers in the UK (by number of clients) and has a strong track record of deal execution, with unrivalled placing power and deep relationships with leading institutional investors. In 2018, the firm advised on six IPOs and raised more than £950 million in growth capital for our clients, and in the year to date we have raised over £200 million; the market remains very much open for business.
Steve: Alantra, N+1 Singer’s strategic shareholder, is a leading global mid-market investment and asset management specialist. Alantra, with a market capitalisation of €550 million, has a 550-strong team based in over 20 countries. In 2018, the investment banking division completed over 200 deals. In the UK, a team of 45 investment banking professionals work with businesses owners across more than 20 sectors based around the country.
For more information about your capital options, please email us or call +44 (0)20 7496 3000.