Acquisiton Questions with RBS
With Peter Watson from Prism and Steve Noon from RBS
Is Acquisition Funding available?
“Absolutely yes. Acquisitions have formed a significant proportion of the deals we have funded over the last few years, ranging from small opportunistic acquisitions to significant reverse acquisitions for AIM listed companies”
What are the principal requirements?
“As with all transactions the key factor we look for is clear evidence of cash generation. The greater the visibility, predictability and sustainability of cash flows the greater the chances of success in securing funding.
But no two businesses are the same and we need to get a close understanding of the business dynamics and strategies of each transaction. There is no ‘one size fits all’ solution.
Of course, with acquisitions the considerations will be doubled as full assessment of both target and predator businesses will need to be made. Whilst it is important to identify and discuss the proposed synergies it is not always easy to lend against perceived future savings and integrated efficiencies and the earlier point about cash flows remains the key when modelling potential debt capacity”
Is there a sector focus?
“Not specifically. We recognise that there are strong businesses in so called ‘weak’ sectors and visa versa. Hence it is critical that we gain a full understanding of the business’ operating model and its competitive positioning within its marketplace.
Naturally our risk assessment process will account for what is happening in the immediate and wider market and we will also need to be comfortable with the longevity of revenue streams”
What level of funding can we expect?
“Again this will differ case to case. No two businesses and no two deals are the same. When assessing debt capacity certain variable factors need to be taken in to account. These include; the availability of assets against which longer term funding might be available, e.g. property and debtors, the presence of contracts or recurring revenues, the profit and cash generation history and so on.
For these reasons the use of a simple debt multiple (i.e. to lend x times profits) can be very misleading.
Additionally the structure and balance of the deal is important. That is to say, how is the overall funding requirement met? Preferably there will be a good balance between company cash, new equity, bank debt and an element of the consideration deferred by the vendor. Again it is impossible to be prescriptive or formulaic about how much the Bank will lend. Calculation of debt capacity is important but the balance and sharing of risk equally so.
Typically most of the deals I work with will involve a debt element of between £0.5m and £10m”
How can I increase the chances of success?
“A well constructed business plan will always help the Bank in undertaking its assessment but before that I would always recommend early engagement with your Bank. At NatWest we always strive to have a close understanding of our customer’s strategies so we hope there should be no surprises.
Being a trusted business partner should be at the core of what all Banks’ strive to do and that can only be achieved through close and open communication.
Of course, in terms of the presentation of a business case to the Bank, this may require specialist advice and the engagement of your Auditors or appropriate Corporate Finance Professionals is always recommended.
Any Business Plan should cover, amongst other things, the key fundamentals of:
- What you are trying to achieve, why and how?
- Your business operating model, its USPs, its market position relative to competition etc
- Your people
- Trading History and Financial Forecasts
- SWOT analysis
Of course, for acquisition funding these considerations need to be applied to both companies together with an assessment of the costs and benefits of the transaction”