Changes to Lenders Operating in the Irish Market Crowe Horwath

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2 Changes to Lenders Operating in the Irish Market 2016 Crowe Horwath 2

3 SME Lending Trends 70bn 60bn 59.8bn 50bn 40bn 31.8bn 30bn 20bn 10bn - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Non-Property Property Source: Central Bank 2016 Crowe Horwath 3

4 New Loans Interest Rate Trends Q % 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% All Outstanding Loans Spread +0.68% +1.05% +0.99% % 0.0% Non-Property Property Total SME Source: Central Bank 2016 Crowe Horwath 4

5 Alternative Funding Gerard O Reilly, Partner, Crowe Horwath

6 Headlines New banking initiative to cut up to 2% off loans to SMEs CSO survey shows SMEs heavily dependent on bank finance 2016 Crowe Horwath 6

7 What s Changed? Additional Transaction Costs Broader Range of Funders Legacy Debt Solutions Detailed Security Structures What s Changed? Greater Emphasis on Cashflow Complex Legal Agreements Restrictive Covenants Limited use of P.G. s 2016 Crowe Horwath 7

8 Cost of Finance Finance Providers Cost vs. Risk Traditional Senior Debt c 5% Asset Based c 6-10% Bridging / Mezzanine c 8-15% Equity c 20% Crowe Horwath 8

9 What Funders Now Focus On Growth Potential Quality of Earnings Quality of Management Team Quality Timely Information Cash Management Future Capex Requirements Repayment Capacity Security 2016 Crowe Horwath 9

10 Funding Combinations Multi Source Finance Traditional Senior Debt Corporate Structures Asset Based Finance Bridging / Mezzanine Debt Tax Implications Equity Finance Cashflow Finance Can Be Riskier 2016 Crowe Horwath 10

11 Funding Case Study Business Expansion Current Business Manufacturing company Current EBITDA 2m Trade debtors 3m Current senior debt 7m Expansion Proposal Business wishes to expand through the purchase of additional plant and machinery Cost of plant and machinery 6m Projected stabilised EBITDA (post expansion) 3.5m 2016 Crowe Horwath 11

12 Option 1 Senior Debt Funding EBITDA Funding Multiple Max Senior Debt Post Expansion 3.5m 3x 10.5m Existing Senior Debt Additional Senior Debt Funding 7.0m 3.5m Cost of Plant and Machinery Shortfall in Funding 6.0m 2.5m 2016 Crowe Horwath 12

13 Other Funding Options Business Expansion Funding Options Expansion Case Study 1 Existing Cash Reserves Invoice Discounting Leasing Mezzanine Debt / Loan Notes / Vendor Finance EIIS Funding Equity Funding 2016 Crowe Horwath 13

14 Funding Case Study Business Acquisition Acquisition Proposal Manufacturing company Current EBITDA 2m Trade debtors 3m Current senior debt 7m Acquisition Proposal Business wishes to expand through acquisition Cost of acquisition 6m Projected stabilised EBITDA (post expansion) 3.5m 2016 Crowe Horwath 14

15 Option 1 Senior Debt Funding EBITDA Funding Multiple Max Senior Debt Post Expansion 3.5m 3x 10.5m Existing Senior Debt Additional Senior Debt Funding 7.0m 3.5m Cost of Acquisition Shortfall in Funding 6.0m 2.5m 2016 Crowe Horwath 15

16 Other Funding Options Business Acquisition Funding Options Existing Cash Reserves Expansion Case Study 1 Acquisition Case Study 2 Invoice Discounting Leasing Mezzanine Debt / Loan Notes / Vendor Finance EIIS Funding Equity Funding 2016 Crowe Horwath 16

17 Current Legal Issues David O Beirne, Partner, Eversheds

18 Primary Legal Challenges Structuring/ Re-Structuring Timelines Advisers Co-ordination Companies Act 2014 Priorities Among the Parties Eversheds Ireland 19/10/2016

19 Case Study Services company 3 existing shareholders ( Vendor Shareholders ) seeking exit after 20 years in the business PE investment negotiations commenced September 2015 and failed May 2016 MBO proposed in June 2016 for 6 MBO members Restructuring to drop all the business and assets (save real property assets) to a NewCo BidCo to acquire 50% of NewCo Vendor finance via put and call option agreement (not loan notes) 50/50 Bidco/Vendor Shareholders Control at shareholder and board level Eversheds Ireland 19/10/2016

20 Case Study Bank lending to finance (1) BidCo acquisition of 50% and (2) each MBO team member Priorities (1) Bank (2) Vendor Shareholders (3) MBO team Parties and advisors involved Documentation Timeline Eversheds Ireland 19/10/2016

21 Michael McCambridge, CEO, McCambridge

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23 McCambridge Background Established 1945 Retailer until 1985 July 1985 Manufacturing only. 10%CT rd Generation took ownership Eversheds Ireland 19/10/2016

24 Between 2000 and 2006 we acquired business in the UK Senior Debt, ID and PG 2007/2008 difficulties in the middle of crisis Refinanced Eversheds Ireland 19/10/2016

25 2009 to 2012 difficult funding market 2012 the market began to ease Strong cash flow Clear plan Eversheds Ireland 19/10/2016

26 Finance became more available from 2012/2013 Senior debt Mezzanine debt ID Eversheds Ireland 19/10/2016

27 Covenants Advisors Communication Eversheds Ireland 19/10/2016

28 Q&A Chairperson: Piaras Power Partner and Head of Banking, Eversheds

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