Corporate Finance Team

Companies The City’s Customers The clients All sizes Different management structures

Fixed Assets/Working Capital Long term funding Working Capital Short-term Keep the business going Overhead costs

Debt Finance Banks lending money Repayment of loan with interest Paying back the ‘principal’ ‘Debt Funding’ Security

Equity Finance Investment Partnership Shares in the business Directors and shareholders – legal company Shareholders receive dividends Realize the investment – sales of shares Appreciation of investment

What does it mean? Investment is Equity Finance ‘Seed Capital’; ‘Early Stage Capital’ Risk Capital Loans are Debt Finances Security Business’s Assets

Venture Capital Investors wish to diversify risk Reduce overexposure Two out of three investments ‘go bust’ Venture capital is based on conditions Large share in the company Seat on the board Venture Capital Provider (VCP) Believe that a business grows fastest in the first five years

Exit Wounds Exit Route Trade Sale – same business Initial Public Offering (IPO) - Shares Recycling – sold to another VCP Buy Back – management buy back VCP shareholding

MBOs and MBIs Management Buyouts Business and its management Decides to sell part of its business No longer ‘core’ activity Trade Sale – another company Existing managers Debt Finance

MBOs and MBIs Management Buy-ins Acquisition Outside managers Company bought out Reward and Incentivize - shareholding

MBOs and MBIs Big Business - Private Equity Privatization of public companies Quick flip – breaking up companies, refloated Private Equity Funds – Incubators Invest in start-ups and early stage development

Examples UK Alchemy, Apax, BC Partners, Bridgepoint, CVC Capital, Doughty Hanson, Duke Street Capital, Permira, Investment Trusts - 3i, Candover, Electra USA Kohlberg Kravis Roberts Advent, Almeida, Apollo, Blackstone, Carlyle, Cerberus, Clayton Dubilier and Bice

Cashflow Cost of production less than price sold Timeframe is irrelevant Businesses are different to individuals Like to borrow – reduces taxes they pay Positive cash flow – not profit But might run of time and money to make a profit

Cashflow Lending to businesses with strong cash flows Businesses with marginal profitability Future prospects!

Example Deals Columbia Natural Resources Bought for $330,000,000 in 2003 Sold for $3,300,000,000 in 2005 Texas Genco Bought by KKR and Blackstone at under $1 billion Sold for around $5 billion

Thoughts Debt Tax deductible Repayments with interest Equity Dividends paid out of tax income Less protection than debt

Thoughts Hybrids Equity for the market Debt to Inland Revenue Gearing Leverage Borrowing more than the means