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YFM and Adex Bridge Investments. Raising Finance in Challenging Times December 2010. 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. Introduction.

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yfm and adex bridge investments

YFM and Adex Bridge Investments

Raising Finance in Challenging Times

December 2010

our brief

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

slide3

Introduction

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

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

Introduction

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

growth in the sme sector is key to the recovery

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

… 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?

Recovery

what is the current banking climate

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

Conventional Debt

Debt finance

Asset Based Lending

  • Letters of Credit
  • Invoice Discounting or Factoring
  • HP & Leases
  • Mortgage
  • Overdraft
  • Senior Loan/Cash Flow Loans
  • Loan Notes
  • Government Grant

Low Risk High Risk

Sector Risk

RISK

Management

Company Risk

Level of Security

how to manage your bank

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

slide9

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
what is private equity

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

Where does private equity fit in to the risk spectrum?

The spectrum of risk and reward

Challenging times - banks retrench

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?

Private equity

what does yfm look for

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

How does YFM drive growth?

Support and close involvement

Experience

Focus and alignment

Access to further funding

Private equity

president engineering group

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

summary

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

slide16

Contacts

Ian Waterfield: YFM Private Equity LtdOffice: 0161 832 7603 Mobile: 07771 578 416 Email: ian.waterfield@yfmgroup.co.uk

Peter Bridge: Adex Bridge Investments LtdOffice: 0121 4477103 Mobile: 0781 2217996 Email: peterbridge@adexbridge.co.uk