YFM and Adex Bridge Investments

YFM and Adex Bridge Investments

Raising Finance in Challenging TimesDecember 2010

© 2010 YFM Group Ltd. All rights reserved. The YFM Group is part of the GLE Group of companies.

Our brief

♦ The challenge of raising debt finance

♦ The approach that banks take to managing their customer base

♦ How private equity can play a major part in future growth strategies

Today


YFM

♦YFM is a UK fund manager specialising in small businesses

♦Investing up to £8 million equity in rapidly growing companies

♦c.£321 million under management

♦Approaching 30 years of investment experience

♦Investment portfolio of c.250 companies

♦A range of investment funds

♦Investment team of 30 people

♦Principal offices in London, Leeds, Bristol and Manchester

♦Dedicated to working alongside management teams to create

transformational growth

For further information visit www.yfm.co.uk

Introduction

Leeds

Manchester

Bristol London

YFM Private Equity Limited [FSA number 122120] and YFM Venture Finance Limited [FSA number 224728] are authorised and regulated in the UK by the Financial Services Authority.


Adex Bridge Investments

♦Joint Venture between YFM and Peter Bridge

♦Midlands Based

♦Led by Peter Bridge who has significant experience in value recovery and corporate restructuring for private equity and banks

♦Equity investment of £1m to £6m

♦Generalist investor with an opportunistic approach across all industry sectors

♦ Fundamentally sound businesses that are too highly geared or cannot raise sufficient bank debt to finance growth

♦ Underperforming businesses where the corporate, owner-manager or family owners are looking for an exit

♦ Pre-packs and Post Receiverships

Introduction


Growth in the SME sector is key to the recovery

♦ Current phase of the recessionary cycle – stabilising and growth

♦ SMEs have traditionally led the UK out of recession

♦ SMEs are responsible for c50% of the UK’s GDP

♦ SMEs usually account for over 60% of employment growth, as we come out of recession

♦ As SMEs are often more flexible and more agile than larger firms they are usually able to seize growth opportunities quickly

Recovery

… but clear challenges remain

♦ The business climate generally will remain challenging for longer than previous recessions.

♦ Those SMEs with a higher reliance upon the public sector will find recovery more difficult but those with a strong export focus should find growth sooner

♦ Are the banks prepared to finance this growth?


What is the current banking climate?

♦ Banking conditions remain challenging

♦ Return of some liquidity albeit at significantly lower levels than pre “credit crunch”

♦ Banks remains focused on high-grade businesses

♦ Pricing and maturity has improved marginally, over the last 12 months, but remain less favourable than pre “credit crunch”

♦ Banks are more supportive in this recession

♦ Banks are taking more equity stakes than ever before

♦ Banks now own large property portfolios

♦ Banks are looking to reduce their exposure:

• Sector Avoidance

• Loan to Value requirements remain depressed

Banking climate


Conventional Debt

Debt finance

♦ Overdraft

♦ Senior Loan/Cash Flow Loans

♦ Loan Notes

♦ Government Grant

♦ Letters of Credit

♦ Invoice Discounting or Factoring

♦ HP & Leases

♦ Mortgage

Asset Based Lending

Low Risk High Risk

Sector Risk

Level of Security

Company Risk ManagementRISK


How to manage your bank?

♦ Maintain channels of communications

♦ Avoid getting entrenched

♦ Be realistic

♦ May need to reset expectations

♦ Work on maintaining their confidence in:

• Your Management Team

• Your Advisors

• Your Business

♦ Try to maintain more headroom than usual

♦ Be transparent, realistic and pro-active

Managing your bank


Case study

Case study - Gambler

♦ Designer, importer and distributor of gaming products

♦ Market Leader with strong brands

♦ Customers include large retail multiplies, sports shops, pubs & clubs

♦ MBO in 2005

♦ Revenues & Profits hit by

smoking ban in 2007

recession from 2008

stronger US$ in 2009

virtual collapse of large customer in 2009

SALES & EBITDA £000s

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 (F) 2011(200)

0

200

400

600

800

1,000

1,200

1,400

1,600

Sales EBITDA

DEBT STRUCTURE £000s

0

1,000

2,000

3,000

4,000

5,000

6,000

2005 2006 2007 2008 2009 2010MBO Loan Notes Senior Debt Supplier Loan Notes Working Capital Facil ity


How did we restructure the company?

Case study

DebtBank's

ExposureCapital

Payments£'000 £'000 £'000

Overdraft 540 NILID Facility 1,500 NILSenior Loan 1,150 450

Banking Facilities 3,190 3,190

Creditor Loan 724 208

Loan Note 2,000 NIL

Total Borrowings 5,914 658

Equity Shares

Owner-Director 100%

100%

Pre-Restructuring

DebtBank's

ExposureCapital

Payments£'000 £'000 £'000

Overdraft 540 NILID Facility 1,500 NILSenior Loan 150 150EFG Loan 1,000 NILBanking Facilities 3,190 2,440

Creditor Loan 724 104

Debt to Equity NIL NIL

Total Borrowings 3,914 254

Equity Shares

Owner-Director 70%

Bank 19%

Ex-Partner 11%

100%

Post-Restructuring


What is private equity?

♦ A type of finance consisting of equity securities in operating companies that are not publicly traded

♦ Most common investments:

♦ Leveraged buyouts

♦ Venture capital

♦ Growth capital

♦ Distressed investments

♦ Mezzanine capital

♦ Investors in private equity:

♦ Institutions – banks, pension funds

♦ Retail

♦ Public funds

Private equity


Where does private equity fit in to the risk spectrum?

♦ The spectrum of risk and reward

♦ Challenging times - banks retrench

Private equity

♦ Lower risk

♦ Lower return

♦ Higher risk

♦ Higher return

♦ Different environment:

♦ Shell shocked

♦ Uncertainty

♦ Nervous banks

♦ Survival of the fittest

♦ Growth sectors

♦ Asset prices generally lower, but premium paid for strong assets

♦ Funding is available - is now the time to invest?


What does YFM look for?

♦ Businesses on the cusp of transformational growth

♦ Ambitious management team

♦ Strong brand, niche product or innovative approach to market

♦ Scalability

♦ Sensible entry price

♦ Strategic value on exit

Private equity

How does YFM drive growth?

♦ Support and close involvement

♦ Experience

♦ Focus and alignment

♦ Access to further funding


President Engineering Group

♦ MBO October 2010 backed by YFM

♦ Manufacturer of specialist valves for the deep mining and industrial gas sectors

♦ Primarily export, with significant opportunities in developing economies

Case study

Challenges Solutions

Bank nervousness Introduction of equity and vendor loan

Uncertain growth prospects and exit route Leveraged structure and early exit planning

Capable but relatively inexperienced management team

Introduction of serial NED Chairman


Summary

♦ Conditions remains challenging – have banks got the appetite to finance SME growth?

♦ Banks are looking to reduce their exposure to risk

♦ More important than ever to manage your bank relationship

♦ The economic cycle is presenting growth opportunities

♦ Private equity is a serious alternative to debt

♦ Private equity works alongside management teams to deliver value

Wrap up


Contacts

Peter Bridge: Adex Bridge Investments Ltd

Office: 0121 4477103Mobile: 0781 2217996Email: [email protected]

Ian Waterfield: YFM Private Equity Ltd

Office: 0161 832 7603Mobile: 07771 578 416Email: [email protected]


Case study graph

SALES & EBITDA £000s

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2006 2007 2008 2009 2010 (F) 2011(200)

0

200

400

600

800

1,000

1,200

1,400

1,600

Sales EBITDA


Case study graph

DEBT STRUCTURE £000s

0

1,000

2,000

3,000

4,000

5,000

6,000

2005 2006 2007 2008 2009 2010MBO Loan Notes Senior Debt Supplier Loan Notes Working Capital Facil ity

YFM and Adex Bridge Investments

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