Raising capital to facilitate long-term growth

BLOG19th Nov 2015

The trading environment over the past 12 months has been challenging for a large number of companies. Given the falling oil price and impact of the wider economy, raising capital to facilitate long-term growth will not have been at the forefront of management discussions.

Controlling costs, managing relationships with suppliers and customers, coupled with reviewing operational efficiencies, has been the focus.

These sound business practices are a necessity. However, managers of ambitious companies also require to have one eye on long-term growth and value creation. This needs to be high on the agenda in the current trading environment. A robust capital base is vital for progressing through the tougher times as well as looking forward to the medium and longer term.

A capital base funded by equity, supported by bank debt for working capital, is recommended, which places emphasis on equity providers for sources of raising capital.

Equity providers with extensive experience of the sector in which you operate are well placed to invest as they will normally have significant insight into your business.

Providers may also add genuine value through access to experienced individuals with a track record and strong networks, as well as past experience investing in similar companies.

Along with understanding your business, and its strategic plans, you must ensure that any prospective equity provider shares your investment philosophy, attitude to risk and outlook for the future, particularly the next 12 to 24 months, given market conditions.

Prior to approaching an equity provider, management teams must undertake a rigorous and honest appraisal of the risks facing their business, along with potential changes in the marketplace.

Strategic plans should be robust, realistic and, more important, show evidence of being executed. In our experience, the strength of management remains the deciding factor in the majority of funding decisions.

For more information contact Gordon Steele, Partner, gordon.steele@aab.uk