1. Corporate Finance Team

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

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

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

5. 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

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

7. 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

8. 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

9. 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

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

11. 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

12. 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

13. 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

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

15. 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

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

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