As the UK moves towards Brexit,
the manufacturing sector will
continue to be a focus
of interest for politicians,
economists and commentators, and manufacturing businesses and
investors will want to know what support the
sector will receive. A key factor in the growth and
development of the manufacturing sector will be
access to debt funding, to enable businesses to
expand through the acquisition of new plant,
machinery and premises to drive
growth by entering into new
geographical markets and
building supply chains.
We have seen strong support from lenders for
a range of businesses in the manufacturing sector and
have recently worked on deals involving a variety of the
funding structures referred to on the right.
Our experience is that lenders are keen to
support a wide range of manufacturers. In 2016 the
steel industry went through well-publicised difficulties,
but funders remained willing to support management
and investors even in these challenging times. We
are delighted to have advised ABN AMRO on funding
the rescue of the Kiveton Park Steel business from
administration.
Whilst the EU referendum result has brought
challenges to those businesses involved in importing
and with exposure to currency movements, the resulting
weakness of sterling has given manufacturers involved in
export a significant boost. We have seen strong support
for clients which are successful exporters – for example
advanced manufacturing and engineering businesses
such as AESSEAL for whom we acted on their new
revolving credit facility. The automotive sector remains
buoyant (with a record 1,600,000 cars having been
manufactured in 2016) and businesses in the automotive
supply chain have been of particular interest to funders.
Turning to the domestic market, sectors which
lenders have been particularly keen to fund include
those related to house building and home improvement
– we advised HSBC and HSBC Invoice Finance on the
refinancing of home furniture maker Home Décor
and the funding of its acquisition of bespoke kitchen
manufacturer Optiplan Kitchens. We also acted for Lloyds
Banking Group on facilities which it made available to
Distinction Doors. Food is another sector which has seen
significant activity and our recent experience includes
working with Shawbrook Bank on an asset based lending
facility to food producer and distributor Around Noon
Limited to facilitate a refinancing and management
buyout.
The appetite of lenders for manufacturing
businesses has been demonstrated by the continuing
trend of downward pressure on lender’s fees and
margins on transactions involving strong corporate
credits. At the same time, competition for funding for
smaller companies provides more opportunities for these
businesses to raise finance, with many challenger banks,
asset based lenders and crowd funders now in the market
and new entrants coming forward into the market all the
time.
In conclusion, the debt funding market for
manufacturing businesses of all kinds is probably
healthier now than at any time since the global financial
crisis, with the major banks, independent finance
companies and new entrants to the market all keen to
assist this key sector of the economy.
It is worth taking a moment
to survey the current types
of funding available to
manufacturers. Finance is
available in a number of forms
and from a wide variety of
lenders including:
Loans - from short term, unsecured
overdrafts repayable on demand to long
term commercial mortgages secured on
property
Invoice Finance (including factoring and
invoice discounting) – selling book debts at
a discount for immediate cash to generate
working capital
Asset Based Lending – raising finance by
releasing capital tied up in stock, property,
plant and machinery
Trade Finance – financing the import and
export requirements of businesses, through
letters of credit, bills of exchange and other
import and export facilities
Supplier Finance – this rapidly growing
source of funding helps to reconcile the
requirements of suppliers for shorter payment
terms with the desire of buyers for extended
payment terms
Asset Finance – provided to support the
acquisition of everything from single “big
ticket” assets to smaller items of plant and
machinery
Crowd Funding – where a large number of
people each lend a relatively small amount
of money and Peer to Peer Platforms which
enable individuals and businesses to lend
to SMEs. These sources of finance are most
suitable for start-up businesses and to meet
smaller funding requirements
Government Backed Initiatives – such
as the Enterprise Finance Guarantee which
provide access to finance for small businesses
unable to provide the security required by
many lenders.
Published: 16 May 2017
Focus on Manufacturing - Edition 5
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