As accelerating Covid-19 infection rates led to Boris Johnson announcing a national lockdown on 23 March, who could have predicted what the next 6 months would have in store for the economic health of UK businesses and the personal health of its citizens.
Pent up demand for M&A funding as government backed loan schemes approach end date
The Chancellor’s announcement of the Winter Economy Plan on 24 September brought some welcome clarity around harmonising the end dates of the existing government backed loan schemes. Applications for all four schemes BBLS, CBILS, CLBILS and the Future Fund now need to be submitted before the end of November.
As one of the first alternative lenders to be accredited for CBILS back in April we focused initially on supporting our existing borrowers, opening up CBILS to new borrowers in July.
During this time we have provided working capital funding to support immediate cashflow pressures as businesses’ income was impacted by the pandemic. More recently, however, we have seen increasing demand for finance to support corporate actions where businesses are keen to pursue new strategic opportunities that have emerged during the pandemic. For example, businesses may be looking to acquire new distribution capabilities or rearrange the ownership structure of the business.
Whilst CBILS rules do permit funding to support standard trade sales including some acquisitions by private equity backed businesses, certain types of acquisition such as MBOs and MBIs are excluded. Funding for many high growth PE backed businesses is also excluded as they fall foul of EU state aid rules, although more flexibility may now be possible given the recent change in date when a business is assessed as being an “undertaking in difficulty”; this has moved from 31 December 2019 to the date of CBILS application.
Like many lenders we have focused our efforts on meeting the demand for CBILS loans from both existing and new borrowers as we wanted to make sure they benefited from features such as payment of the first 12 months interest by the government.
However, now that the government loan schemes are coming to an end, we recognise there is a growing pent up demand for funding that was not eligible under these schemes. One of the areas where we are well placed to help advisers and borrowers is funding for acquisitions, particularly MBOs, where we offer a number of advantages.
- We focus purely on mid-sized businesses so have built up real specialism in funding deals from £1m-15m
- Our model of having origination and credit teams working hand-in-hand with advisers “in region” means we can give an early decision on our funding appetite and develop long-term relationships with borrowers
- Our mix of sophisticated data analytics and traditional underwriting skills enable us to provide cash flow loans on more flexible EBITDA multiples
- We have a specialist team to serve lower-mid market private equity investors looking to fund new portfolio acquisitions or acquisitions by existing portfolio businesses
- Our efficient funding process is designed to offer transparency and certainty to advisers throughout the process which typically takes 6-8 weeks from initial enquiry to drawdown
- Flexibility on payment terms such as interest only payment periods and committed facilities options
- Flexibility on covenants such as EBITDA and liquidity performance measures to match the borrowers’ expected income patterns
- Ability to support future dividend payments