Raising capital in the energy sector to deliver growth aspirations

Many companies in the energy sector are now focussed on growth following a prolonged period of uncertainty. A new trading environment and corporate landscape is creating opportunities for businesses to grow and take a step change in how they operate. Although the focus is likely to be customer and operational, a robust capital base is a vital foundation for any growth strategy. A capital base funded by equity, supplemented by bank debt for working capital is recommended, which puts into focus equity providers and sources of growth capital.

In our experience, equity providers with significant experience in the energy sector are well placed to invest for growth as they will normally have a unique insight into your business. A knowledgeable equity provider can also add genuine value through access to experienced individuals who have a track record and good networks.

As well as understanding your current business, an equity provider must also understand and buy in to where your business is going with its growth strategy. To achieve this, you must ensure that any prospective equity provider shares your investment philosophy, attitude to risk and outlook for the future.

Before approaching an equity provider, management teams need to undertake a rigorous and honest appraisal of the risks facing their business and ensure that the strategic and tactical plans are robust and more importantly executed. This is critical to maintain the confidence of prospective equity providers.  They will want management to have a cohesive strategy and realistic financial projections with plans in place to respond and adapt to unexpected changes in the market.

A key element that will attract investors and drive investment decisions is the scalability of the value drivers in your business. Cross border activity has increased, and is likely to continue to, therefore companies that can target the right international markets improve their attractiveness to investors. Just by setting up easily scalable access routes to new markets, you are greatly increasing your growth potential.

In our experience, the strength of management is the deciding factor in the majority of funding and investing decisions. The quality of management will be rigorously assessed by investors and thier ability to achieve strategic plans based on past performance.

Demonstrating sustainability of your current business coupled with visibility on future activity within a strategic business plan will decrease the risks associated with forecasting future earnings. In turn, the probability of securing investment will improve with investors willing to fund more visible earnings.

It is vital that companies seek professional advice from experienced advisors at an early stage of the process. An experienced adviser will control and add value to the process, assist in selection of the most suitable equity provider and ensure a successful outcome.

For more information contact Gordon Steele (gordon.steele@aab.uk) or your usual AAB Contact.