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“CREDIT CRUNCH” WILL CHANGE SOUTH WEST BUSINESS OWNERS’ PLANS TO GROW OR RETIRE

“Banks are demanding more, but venture capitalists will now become more important in the South West”, say Bishop Fleming

In 2008, South West business owners – the biggest drivers of the Region‘s economy – will have to rethink how they finance their plans for growing, buying or selling their business, or simply trying to retire.

The “credit crunch” means that major banks will look to reduce the level of bank debt on transactions, resulting in a need for a greater proportion of equity to be provided by other investors – making the South West‘s local equity funders more important, and opening the door for out-of-region venture capitalists wanting a “slice of the action”.

This is the verdict of corporate finance experts at Bishop Fleming, the accountancy firm with the widest spread of offices throughout the South West.

According to Robert Davey, Bishop Fleming‘s corporate finance partner for Devon and Cornwall:  “The South West is different to most of the UK.

“Until now, major banks have provided up to 90% of funding for most South West private businesses‘ deals to finance growth plans, to buy or sell companies, and to engineer the owner‘s retirement plan – including management buyouts (MBOs) and management buy-ins (MBIs).  Much of that bank lending has been unsecured, with the balance of funding being provided by other investors in the business.

“From now on, the big banks will be looking to those investors to provide a much larger slice of equity (share-holding) in any company deal they are prepared to finance, so that their risk is reduced.  Right now, some banks are demanding 30% equity, as well as personal guarantees.  I suspect that we could see that equity figure rise to 40%.

“The equity investment market has not been as strong in the South West as in other parts of the UK.  That will now change”, Mr Davey predicts.

He sees this as an opportunity for owner-managed businesses in the region.

“This region has equity funding sources not available elsewhere, including Finance South West, Finance Cornwall, and the South West Angel Investor Network (SWAIN)”, said Mr Davey.

“Although this region has been unusual in not being a strong market for national venture capitalists, none of whom now have a base in the South West, many are making regular visits and have been investing in some of the biggest recent deals.

“Despite the ‘credit crunch‘, this region has a healthy core of vibrant owner managed businesses that need to do deals to finance growth, or provide the owners with a retirement exit.   For example, several hundred companies in Devon and Cornwall are owned by directors now approaching retirement age”, Mr Davey points out.

So what is their alternative to the banks?

“Unlike many other UK regions, the South West has a number of special local equity funders and also access to grants.  These finance sources could now become a more attractive alternative to the newly constrained bank loans, while national venture capitalists will also be taking a stronger interest in this region”, said Mr Davey.

“While times are undoubtedly getting tougher for everyone, these factors should mean that South West business owners have more opportunities than their competitors elsewhere in the country”, he added.

ENDS               17th January 2008

For further information please contact Neil Fraser, Sturgess Van Damme, on 01275 349011 or email neil@sturgessvandamme.co.uk