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Thursday May 10th 2018

Funding for Growth

Deloitte Corporate Finance

2© 2018 Deloitte. All rights reserved

Time Content Speaker

19.00 – 19.10 Welcome & Introductions / MC Matthew McCullough, Corporate Finance, Northern Ireland

19.10 – 19.30 Equity Funding Options Anya Cummins, Partner, M&A

19.30 – 19.50 Guest speaker Q&A with Rodney Lowry, Group CEO, Lowe Rental Ltd.

19:50 – 20.20 Guest Speaker Jim Darragh, CEO, TotalMobile

20.20 – 20.50 Debt Funding Options John Doddy, Partner, Debt & Capital Advisory

20.50 – 21.00 Closing Remarks Peter Allen, Partner, Corporate Finance, Belfast

Thursday May 10th

Funding for Growth Agenda


Funding for Growth Speakers - Thursday May 10th 2018

E: [email protected] T: +353 1 417 2594

John leads the Debt and Capital Advisory team in Ireland. He has

over 20 years financial services experience including 10 years spent

in corporate banking & mezzanine finance. John has acted as

company side advisor to many mid and large corporates on raising

new senior, unitranche and subordinated debt from Irish and

International Banks to Alternative Lenders.

Anya specialises in M&A, disposals & equity capital raising. Recent

transactions include: lead advisor to the shareholders on the sale of

Voxpro to Telus International, advice to One51 plc on the $150m

acquisition of US based Macro Plastics Inc., advisor to shareholders

of Rothco on acquisition by Accenture Plc., lead adviser to Sovereign

Capital on their investment in Irish insurance broker Arachas & most

recently lead adviser to MML & Lowe Rental on the investment by UK

fund Perwyn.

John Doddy, Partner, Debt & Capital Advisory Rodney Lowry, Group CEO, Lowe Rental

Anya Cummins, Partner, M&A

Lowe Rental has grown to become one of the world’s leading

refrigeration and catering rental equipment providers. Rodney Lowry,

CEO, will discuss Lowe’s growth journey which includes the

investment in 2014 by Irish fund MML Growth Capital Partners

Ireland and the recent investment in the business by Perwyn. This

latest c.£60m transaction represents one of the largest private equity

deals to come out of Northern Ireland

E: [email protected] T: +353 1 417 2240

Peter Allen, Partner, Corporate Finance, NI

Peter leads the Corporate Finance practice in Belfast & has more than

15 years’ experience advising a wide range of performing and distressed

businesses across all key sectors in Northern Ireland. An expert in

restructuring and refinancing, he has led some of the largest multi-bank

deals in Northern Ireland. A Chartered Accountant and Licensed

Insolvency Practitioner, Peter also sits on the advisory boards of a

number of charitable and voluntary organisations in Northern Ireland.

E: [email protected] T: +44 289 5923525

Jim Darragh, CEO, Totalmobile

Jim has worked in Technology for over 20 years. He was CEO of Scottish

Equity Partners backed Zeus Technology, successfully exiting to

Riverbed Technology for a reported £86m and then as CEO of Abiquo

during which time they raised $5m from Oxford Capital. Jim moved

onto Ipanema Technologies, who were acquired by InfoVista. Jim then

joined Inflexion Private Equity backed CMO Software driving the

business to a successful exit to Mitratech. Jim has been CEO of Belfast

based, and Lyceum Capital backed, Totalmobile since July 2016.

Matthew McCullough, Senior Manager, NI

E: [email protected] T: +44 289 5923562

Matthew is a senior manager in the corporate finance team based in

Belfast . He advises on debt and equity fundraising deals. Matt has

been the driving force behind a number of deals to help growing

businesses in the past year, including the £2.5m equity investment in

café chain Bob & Berts by BGF, and the £1.35m debt and mezzanine

financing package that enabled ‘We are Vertigo’ to launch Ireland 1st

indoor skydiving centre.

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© 2018 Deloitte. All rights reserved

Equity Funding OptionsAnya Cummins – Partner, M&A


A range of funding options depending on the stage of development, the type of capital required and the level of the fundraise

Equity options

Venture capital

Venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential.

Typically early stage and mainly focused on the tech sector.

High net worth individuals

Represent a small number of individuals with disposable capital who will generally invest directly in your business or through a 100% owned holding company.

Enterprise Investment Schemes (EIS, VCTs, SEIS, SITR)

EIS schemes allow individuals to obtain income tax relief on investments in qualifying companies, social enterprises or venture capital trusts. Investor limits are between £100k-£1m per annum and £5m annually for the business. Crowd funding also emerging as an alternative.

Private equity

Private equity represents the largest potential private funding source in the Northern Irish market for SMEs which can be utilized to fund new technology, make acquisitions, expand working capital, facilitate succession planning and to bolster and solidify a balance sheet. The spectrum of options within private equity is wide.


What is Private Equity?

Introduction to Private Equity

Private Equity is an “Investment club” generally

seeking capital profits through investments in a

portfolio of private companies which are often (but

not always) supported by bank debt

Key objectives of any private equity fund investment

is to make a return and create value within its

portfolio companies (increasing shareholder value)

Private equity fund managers are actively involved

in raising funds from investors, sourcing

investment opportunities, negotiating deals and

actively managing investments with a view to

realising returns

Carried interest

scheme

General

partner

Investment

Manager

PE Fund

Company

A

Company

B

Company

C

Company

D

Investment

Fund A

Investment

Fund B

Investment

Fund C

Investment

Fund Z

Partners in PE

fund

Capital gains, dividends and interest (C,G,D&I)

Fee income

Typical Private Equity Structure

All PE funds are very different – all seeking a

competitive advantage in the marketplace whether

it be Venture Capital, Growth Capital or Private

Equity. Typical investment hold period is 5 to 7 years

but this does vary


Private Equity Overview

Access to debt terms not ordinarily available – equity partner + equity story

Focussed strategic and exit plan delivering significant shareholder returns during the

investment period

Access to new clients, markets, suppliers, distribution channels and possible buying

power opportunities

Appropriate management incentivisation to drive the growth of the business during

the investment period

Experience in delivering specific growth areas e.g.“online growth” and “buy &

build” strategies and will provide significant strategic assistance

Balance of cash-in and cash-out to suit existing shareholders current circumstances –

derisking and growth capital

A Private Equity partner will usually offer more than just funding…


A very active PE environment in NI with continued investment from NI funds, Irish funds and the UK across a range of business types and sectors…..

Significant recent PE investment into Northern Ireland


Current UK and Irish Private Equity MarketsDeal volumes increased in 2017 across the Private Equity markets in both the UK and Ireland and “dry powder” has continued to increase

Buyout deal count• UK - 79 (2016 - 64) buyouts in the lower mid-

market (£25m - £100m EV) and 58 deals over £100m EV (2016 – 45)

• This is the second highest volume in recent years – despite political uncertainty around the Brexit negotiations, although outturn for FY18 will be interesting to see…..

• Ireland – 37 announced PE deals worth €12.2bn representing a 141% value increase compared to 2016* - highest PE activity year on record

• Continued strong appetite for investment from both domestic funds and international funds –market remains hot and competitive

• Driven by dry powder of funds and strong leverage markets, coupled with the quality of businesses coming out of NI/Ireland, many of whom are very international by definition….

PE buyout activity UK deals with an EV of more than £25m

*source William Fry M&A review 2017


Typical considerations for PE when reviewing an investment opportunity include the following…

What is attractive to Private Equity?

Buy & Build

Management teamGrowth plan and international strategy

Underlying sectorRobustness of financials / Quality of Earnings

Market shareRisk assessment / Potential upsides

Financial performance Debt capacity


PE funds are focused on efficiently completing transactions and therefore demand information to be comprehensive and consistent – preparation is key

Being prepared for a Private Equity process is key to success

Fully populated data room- All the detail you can imagine! Diligence will be thorough and ideally quick, so preparation for DD is key

Full Vendor Due Diligence completed- Expectation to run a competitive PE process. Requires upfront investment –both time and cost

Complete financial modeland robust underlying business

plan – different to trade buyers, PE funds are backing the team and the

plan

IM reconciling to all financials

- Don’t go to market until all the preparation is done and the story

hangs together….

Aligned shareholders with a clear view on objectives, who is remaining with the business, equity stake being sold and any growth capital requirement, as well as a clear view on what you are looking for in a

partner


What to look out for when raising Private Equity…

Some takeaways……

• Be clear about why you are looking to

raise equity – what is the rationale?

• Set priority objectives for you and the

team around you – what matters most

and what are you looking for in a

partner? “Must haves” and “must have

nots”?

• Seek help navigating the relevant

investor landscape to identify and

select the right partner – they are all

different

• Be prepared – robust financial

information, market analysis and a

clearly articulated growth story – run a

quick and competitive process/

understand potential issues in advance

• Processes absorb time – plan ahead.

Keep focused on running the business

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Q&A with Rodney LowryCEO, Lowe Rental

Funding for Growth

Jim Darragh – CEO Totalmobile

BelfastHQ 1985

140

staff60,000Mobile Workers

&240Organisations

supporting

A long journey

Selecting an investor – What no one tells you

Do they understand you and your market?

What does the investmentcase look like?

Get plenty of references –understand if you can

work with them

How will they help you grow?Do you have the same

growth goals?

Working with investors – What no one tells you

Get ready for the proctology exam

Why ask one question when you can ask 10?

They speak a different language

Everything translatesto a spreadsheet

A different intelligence

What you should do to manage them

Get a strong Chairman and a board you can rely on

Stay ahead - Metrics &Board Reporting

Agree the Exit plannumbers, times, multiples,

clear expectation

Have the right team, before somebody makes you!

When the time comes – What no one tells you

The Banker - half friendhalf confessional

Be prepared to manage the greedy!

Every deal dies, let it, walk away

Due DiligenceTwice the fun!

It could be you

You get the right investorthey will have backed

you to grow

You have an agreed plan and metrics to measure it by

Be strong, get what you want from the deal

A B N

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Debt Funding OptionsJohn Doddy- Partner, Head of Debt & Capital Advisory

© 2018 Deloitte. All rights reserved 23

Deloitte Debt and Capital AdvisoryA global network of over 150 debt professionals

• We are a Global network of over 150 debt professionals in over 20 countries working together regularly on cross-border transactions.

• Deloitte Ireland is currently active across 21 cases raising over €1.3bn of debt (junior and senior).

Who we are

Situations which typically trigger our involvement

Refinancing

Refinancing existing debt prior to maturity

Acquisition Financing

Arranging debt facilities to fund actual or prospective corporate acquisitions

Large Capex projects

Securing financing for specific expansionary projects

Financing options review

Preparing a report examining available financing options

Why people use our team

Global coverage Debt and Capital Advisory

Amendment Exercise

Approaching existing lenders to obtain additional covenant or other flexibility

Shareholder return

Putting in place funding headroom to allow share buy-back programmes, special dividends or dividend recapitalisations

Entering new debt markets

Assistance in accessing new providers of debt capital

Financing Expertise

Deep knowledge and understanding of debt financing markets, options available and innovative financing solutions

Global Network

Excellent long-standing contacts to decision makers at over 300 local and international banks and funds

Independent Advice

Professional independent advice fully aligned with your objectives

Execution Resources

A team of career debt financing professionals and ex-lenders who can support borrowers with first class execution resources

Competitive Financing Processes

Efficient execution of competitive financing processes designed to meet your strategic timetable objectives

Negotiation Expertise:

A detailed understanding of balancing financing relationships with obtaining the desire outcome

Deep client relationships are at the heart of the Deloitte Debt Advisory business model

Off Balance Sheet Migration

Developing the optimal structure to move loan facilities off the balance sheet

© 2018 Deloitte. All rights reserved25

How our Clients are reacting to the current environment

Debt & Capital Advisory

Borrower

De-Risk

Diversify

Growth Capital

Improved T&C’s

Direct Lenders

Banks

Term/Covenants/

Cash Release

Club/New Markets


Accessing the appropriate level and type of debt

Accessing the Debt Markets

Structures

EV/EBITDA

Up to 3x

Senior debt

E + 50 –

350bps

3x-4x Senior

debt

E + 300-450bps

4x- 5x

Unitranche

E + 650-900bps

Weighted Average Cost of Debt (WACD)

E + 50-350bps E + c.450bps E + c.750bps

Pros and Cons per structure

Senior debt (Bank)

Unitranche / Mezz (Fund)

Equity

Note: the structures and

pricing presented are

indicative and only for

illustrative purposes

1x - 1.5x Mezz

E + 1200bps

3x-4x Senior

debt

E + 300-450bps

E + c.750bps

Lowest pricing

Relationship bank

Bullet RCF

Increased leverage

Club of relationship

banks

Stretched leverage

Flexible covenants

Speed of execution

Relationship lender

Low level of

amortisation

Low leverage

Shorter tenor (3-5

years)

Leverage not as high as

other structures

More restrictive terms

Amortising

Higher pricing

Non call periods

Stretched leverage

Flexible covenants

Greater role for

bank

Higher pricing

Intercreditor/AAL

High Growth options

10x

9x

8x

7x

6x

5x

4x

3x

2x

1x

0x

Up to 3x

Senior debt

E + 50 –

350bps

3x-4x Senior

debt

E + 300-450bps

4x- 5x

Unitranche

E + 650-900bps

3x-4x Senior

debt

E + 300-450bps

1x - 1.5x Mezz

E + 1200bps

Unlevered Leveraged Unitranche Senior/Mezz


Example Structures used to maximise flexibility and debt terms

SPV

Debt Funder

SPV SPV

Debt Funder

SPV

Debt Funder

Hold Co.

Group

Hold Co.

Sub Sub Sub

Bank / Club

Group/Sub-Group

EquityTransfer

Sub Sub Sub

SPV

Sub Sub

Hold Co.

Debt Funder / Bank Club

Direct Lender


Example 1. Isolate risk – optimise overall terms

Objective

PropCo seeking to refi expensive capital and fund five year business plan

Issue

Strong appetite amongst traditional lenders i.e. Banks

However, issue with “land without planning”

Affecting overall pricing & covenant

Increased default risk

Solution

Bank Club for core assets and business

Fund “land without planning” on an SPV basis with a Direct Lender

Result

Secured optimal pricing and flexibility, minimised default risk

Group/Sub-Group

Sub Sub Sub

LandCo

Sub Sub

Group

Banking Club(90% of Debt)

Direct Lender(10% of Debt)


Example 2. Buy & Build – debt funded roll out

Group

Group

Sub Sub Sub

Direct Lender Bank

Objective

ABC Group is planning a significant capex project to roll out new outlets

Issue

Banks could not provide the required level of leverage and/or flexibility

Result was Group did not have a fully funded business plan unless they raised equity. Family owned business, shareholders did not want to dilute ownership

Solution

Direct lender provided the term debt and capex funding through a unitranche facility. Significantly reduced level of amortization thereby the level of third party funding required was reduced

A Bank provided all of the working capital facilities on a “carve out “ basis

Result

Fully funded business plan without a requirement for new equity

Given the low level of amortization and bank carve out, the overall increase in debt cost is not significant

Using leverage whilst managing risk….

© 2016 Deloitte. All rights reserved 30

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Deloitte NIPeter Allen – Partner, Corporate Finance

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Thursday May 10th 2018

Thank you for joining us

Deloitte Corporate Finance

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