Baker Tilly: Potential investor advice to small & mid-cap

12 February 2015 Consultancy.uk

The UK business environment is on the up, however, while the numbers look positive, a survey by Baker Tilly of institutional investors’ perspective on 2015 discloses volatility, with investors not looking for surprises or broken promises. The investors list 6 tips for small and mid-cap businesses when it comes to finding investors.

The UK economy has shown signs of recovery after the 2008 credit shock, growing 2.6% over the last year and up from 1.7% in 2013. However, according to a recently released report from Baker Tilly and The Quoted Companies Alliance, investors remain jittery, warning that 2015 “could be a difficult year” and that a sense of honesty and realism needs to pervade business looking for investment from their funds in the current environment.

Chilton Taylor, Baker Tilly’s Head of Capital Markets, explains: “The current macroeconomic and political uncertainty will mean that 2015 will continue to be a difficult climate for many UK businesses. Getting investment over the coming year won’t be easy, but the good news is that investors are actively looking for companies that have a sustainable business model with reasonable growth rate. Businesses that focus on being realistic about their expectations and valuation and delivering what they promise will be the ones that get the support from investors in 2015.”

Baker Tilly - Small and Mid-Cap Investors Survey 2015

In the report, titled “Small and Mid-Cap Investors Survey 2015”, some of UK’s key small and mid-cap institutional fund managers were surveyed, to provide insights into how they view the market as well as providing tips to companies looking for investment in the current period. Particularly small and mid-cap quoted companies need to be realistic with their forecasts and manage their investors and other stakeholders’ expectations, according to the fund managers.

Baker Tilly discloses the key tips provided by the institutional investors, Consultancy.uk rewrites them in summary:

Don't overpromise - Don't overprice - Raise the right amount of money

1. Don’t overpromise and then fail to deliver – Being overly optimistic about the company’s value may well break the trust between the investors and the company if things turn out otherwise. By not over-promising and managing expectations through careful and well thought out announcements about the future timeline, disappointment can be mitigated.

2. Don’t overprice – Avoid pricing IPOs too high so that future investors can see where growth in value will stem from – the fund managers revealing that considering the quality of companies floated in 2014, some of the IPOs were set too high.

3. Raise the right amount of money – Be careful to raise the funds required to meet strategic plans, raising less and relying on accessing the rest when markets recover, is not, according to the investor sentiment, the way to go. Companies may find themselves without enough cash to meet their strategic goals.

Choose the right advisers - Give straight answers - Dont gloss over the problems

4. Choose the right advisers – Care must be taken when choosing investment advisors, with advisors to look for ones that “will listen and work for their benefit.” The fund managers surveyed pointed out bulge-bracket banks as advice to avoid on the basis that they fuelled the IPO boom of early 2014 for their own interest.

5. Give straight answers – Investors are looking for straight up answers to difficult questions, and will be put off making commitments without clarity on the state of business.

6. Don’t gloss over the problems – disclose the challenges faced by the company, investors understand that no business is perfect and being honest and direct is able to build up trust. 

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.