Corporate Finance Newsletter – March 24

It has been a busy start to the year for the LB Corporate Finance team, particularly with buy-side due diligence projects, but we have also been involved in sell-side and valuation projects. Some of our recent projects have included:

Project London – Assisting our client with FDD for the proposed acquisition of a retail business that is one of the leading suppliers of alcohol security solutions.

RE Group – Undertaking the financial due diligence as part of the acquisition with RE Group, together with offering deal support to ensure successful completion of the transaction.

Project Ballet – Assisting with the sale of Inroads (Essex) who are a company the provide residential and supported living to young people.

Sans Heritage – Assisting with providing advice in relation to deal structure and tax advice, to ensure the successful completion of the theme park dream land in Kent to Live Nation.

Hoxton – Offering transaction support services consisting of contract reviews, deal structure and tax advice to ensure successful completion of the transaction.

UCM Global – Full lead advice role to assist the management team acquisition of the UK subsidiary of a French listed company. This was to initially undertake a valuation of the company and then assist the management team negotiate the transaction, review contracts, arrange funding and support the team to a successful conclusion.

Succession Planning

As mentioned on Stuart and Matt’s visits to each of the offices, it is key that we raise succession planning as soon as possible to our clients, and the key to doing this is:

• Asking the client about their business and their future plans and signposting them to the corporate finance team who can help them devise a succession/exit plan.
• These conversations can be had at year end meetings, general client visits, a phone call, or anytime someone at any level is speaking to the client.

Consider reaching out to us when the client mentions any of the following and ideally make us aware of these opportunities as soon as possible:

• Growth – If the client is looking to grow, we can provide the following services:
  • Growth by acquisition – we could help our clients identify targets.
  • EMI scheme – lock in the key member of staff.
  • Forecast – might need to do a cash flow forecast for this.
  • Funding – Do they need funding to achieve their growth plans
  • Then finally, use Clarity for these.
• Retirement – Services we could provide relating to this:
  • Sell side mandate – help the client sell their business.
  • Valuation work.

Funding

When preparing accounts and working with clients, let us know if you see any of the following:

• Interest rates on existing debt looks high
• The debt is not suitable for the client in terms of there being cashflow issue
• The debt is not suitable for their growth plans or is up for renewal

If the interest clients are paying across the different types of facilities is greater than the following, please contact us to see if there is a better product for them.

• Invoice Finance loan – above 3% plus base
• Business loan – 9%+
• Commercial mortgages – 7%+
• Vehicle finance/Asset finance – This changes a lot dependent on the asset but anything above 7%

Note the current Bank of England base rate is 5.25%

Market Update – M&A Activity

According to the BDO quarterly report (PCPI), 613 deals were completed in Q4 of 2023 up 8% on the previous quarter. Private equity contributed to 18% of activity the highest proportion since Q1 2021. With interest rates forecasted to reduce, deal volumes for 2024 appear to be more optimistic.

The median EV/EBITDA multiple per the Q4 report was 9.6 (Q2 2022 10.2) times for average deal sizes of £14.3m, slightly down on the previous quarter at 9.8 times.

Corporate Finance Terms – What is Working Capital?

In simple terms, working capital is the money a business needs to maintain its day-to-day operations. Working capital is effectively (current assets – current liabilities). Therefore, a healthy working capital balance means that the cash coming into the business is greater than the outgoing cash.

In a transaction scenario, the buyer and seller will need to agree on a target net-working capital. It is important that the purchaser is comfortable there are significant levels of working capital post transaction. As a result, working capital levels can influence negotiations and the purchase price of the business.