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19 September 2011

A spotlight on....The North West Fund for Development Capital

Simon Cleaver discusses Development Capital opportunities

Simon cleaver

YFM Equity Partners manages The North West Fund for Development Capital, a £45m pot aimed at supporting the expansion of established businesses with investment of between £100k and £2m with some form of equity participation.


Here Simon Cleaver, an investment director at YFM Equity Partners, outlines the reasons why, in such challenging economic times, ambitious management teams should consider bringing in an investor with a financial interest in growing the equity value of their business to support their growth strategies:


"Despite the seemingly constant stream of grim financial data that has emerged on the UK economy recently, The North West Fund for Development Capital has seen a marked increase in applications from businesses looking for expansion funding - indeed, August was our strongest month for applications since the Fund was launched


"Management teams are beginning to realise that growth plans can only be put on hold for so long. After all, who can predict with any accuracy when the economic situation will improve and/or Banks lending criteria relax? For those businesses that are doing well and outperforming their peers, now could well be the time to grasp the nettle to increase competitive advantage.


"Utilising investment capital with an interest in the increase in equity value is one of the most effective ways to support the growth of an established business. A long-term funding mechanism, equity investment provides a permanent base for a growing company. It can help to fill the funding gap for a project where the security or cash flow cover for a loan might not be available. For those with ambitious business plans, therefore, equity investment is often the preferred means of funding development capital.


"Of course, that is not to say that equity investment is not appropriate for businesses that already rely on a certain level of debt. In fact, for a business with an existing line of debt funding, it can be particularly helpful in strengthening the bottom half of the balance sheet. Businesses can reduce their reliance on debt finance and lenders generate more headroom on their advances - a win-win situation.


"Many of the deals that we are seeing at the moment would, up until a few years ago, have been funded entirely with debt from the mainstream banks. Now, however, banks' lending criteria are tighter and are likely to remain so for the foreseeable future. But this shouldn't deter a business with a robust growth plan from seeking development capital funding. Rather, than competing with banks, we are keen to work with incumbent lenders to find ways of co-funding their customers' viable growth plans.


"In instances where a growth plan cannot be funded by bank debt alone, for example, we can step in to fill the funding gap in the form of equity or mezzanine debt - debt that carries with it a share in the growth of the equity value of the business. We are looking at a number of these types of transactions at the moment reflecting our intention to work more closely with a broad spread of banks to support the region's businesses.


"Between now and the end of 2011, we expect to complete a number of investments across a variety of sectors and types of business. We are keen to build a portfolio that is rich and diverse in terms of sector, type of business and locality. We are well on our way to achieving this and would welcome discussions with businesses, bankers and advisers about growth propositions that fulfil our criteria."


To find out more about The North West Fund for Development Capital, contact the team at YFM Equity Partners via www.thenorthwestfund.co.uk, or on 0161 832 7603 or 0151 600 5134.

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