Foreign travel broadens the mind – and business funding

We are now dealing with the fallout from the recession and minimal and very tentative growth, with almost all the developed nations now engaged in a desperate bid to balance their books and protect their economies from a financial crisis caused by an increasing debt mountain and zero, if not negative, growth.

One of the harshest consequences of this lengthening financial meltdown has been the widespread contraction in credit and of growth finance. Ambitious successful companies with impeccable track records find it inordinately difficult to secure working capital to secure finance for investment and expansion. Moderately successful businesses have little chance whatsoever.

It is no wonder alternative providers have come into the market, such as web-based “crowd funding” sites and businesses that match wealthy individuals with small companies that need investment. The extended family network has also come back into fashion, with younger entrepreneurs reaching out to older family members in search of low-cost funding. Necessity may be the mother of financial invention but such solutions are not going to release the credit needed by growing businesses, let alone get the economy moving at the pace needed to stem the growth in unemployment and reverse the contraction in investment.

Growing businesses are vital to the future prosperity of UK Plc, and there are plenty such enterprises. The one characteristic of a growing business is a healthy appetite for cash. Despite promises from government, the reality is that our domestic banking system is still suffering from a cash drought three years after the financial system almost collapsed. It is an entirely unsatisfactory situation for everyone.

There is, however, an alternative, an alternative that you will not find articulated by domestic financial institutions – and that is to go abroad for your growth finance. You will be met with interest, with enthusiasm and with a cheque book. But you need to know which countries are open for investment finance, which institutions can be approached and who and how to approach.

Some key factors have to line up, of course – the business must have a genuine track record of success, there needs to be good profit, a strategy for further expansion and a strong management team. These are standard requirements you would have to provide to a private equity house, an investment bank, an angel syndicate or indeed, your wealthy uncle.

The overseas opportunity and availability of funds was perfectly illustrated a few weeks ago when the capital markets team at McClure Naismith advised on the largest admission to the Plus market this year. The transaction was a £253 million reverse takeover by Phoenician Corporation V Limited of Prime Investments Group Limited. Other deals that we are currently working on include matching seed funding from Bahrain with a UK-based start-up; a Glasgow-based client seeking growth finance from the Irish Sovereign Fund; and another UK client looking to launch its business into Malaysia with finance from Malaysia and Indonesian sovereign funds.

The traditional model of matching UK businesses with UK funds is in retreat, and it is likely to be permanent. In the new world order emerging from the chaos of the old, businesses need to recognise that you raise the money where you can find the money. And at the moment, those sources are predominantly overseas, and from countries that three years ago would never have been mentioned in board meetings – countries such as China, Brazil, Ireland and much of the Middle East.

There is money for investment, and at all levels, from start-up right through to the acquisitions and listings, such as the Plus deal above. There is no requirement for unique or complex structures, just standard due diligence on the credibility of the business and its people, and most importantly, the potential it offers for growth.

l Andrew Williamson is a partner in the capital markets team of McClure Naismith LLP.