CIMA CPD PRESENTATION Debt & Equity Finance

Transcription

1 CIMA CPD PRESENTATION Debt & Equity Finance DON HARRINGTON Director, GOODBODY CORPORATE FINANCE 19 October,

2 Macroeconomic Environment 2

3 Irish M&A market at low levels Irish M&A Activity Value of Irish M&A Activity by Acquiror Type Irish M&A Activity 3,500 Value of Irish M&A Transactions by Acquiror Type ,000 2,886 Value of Deals ( bn) H1 05 FY 05 H1 06 FY 06 H1 07 FY 07 H1 08 FY 08 H1 09 FY 09 H Volume Value of Deals ( m) 2,500 2,000 1,578 1,500 1,245 1, , Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Irish quoted plc Other Irish company Irish PE Overseas company Overseas PE Source: Ion Equity/NCB M&A Tracker Survey Value ( bn) Volume Source: Ion Equity/NCB M&A Tracker Survey, Goodbody Analysis Key Irish deals include - AIB non-core disposals, Greenstar/Veolia, ESB purchase of NIE, Greencore sale of Malt division, C&C sale of spirits division to William Grant, Trintech sale of healthcare division, Acquisition of Skillsoft by PE consortium H1 saw growth of 25% across Europe in M&A volume Predominantly cross border - companies acquiring for growth and market entry Industrials and chemicals, financial services & consumer most active sectors Most PE retreating to mid-market some up-tick in activity levels 3

4 M&A Deal Issues 2010 Most deals < 200m More MAC clauses (poor earnings, broader industry / economic issues) Corporate capital/liquidity driving M&A deals View last year was that strategic buyers would represent > 80%, PE is making a comeback Tough to negotiate indemnification caps/baskets, MAC clauses, holdbacks, exclusivity/ Go Shops 4

5 Primary debt issuance moving off the lows European Senior Loan Volume Senior New Issuance Volume bn Source: Standard & Poors Q1 Q2 Q3 Q4 H2 pipeline for mid-market deals better than H1 Some underwriting back in the market Majority of facilities contain significant amortising portion Margins in the bps Tenors in the 5-7 year range Most deals are in the mid-market, bilateral and club deals Covenant relief costing bps and margin uplift of 150 bps + further equity from sponsors 5

6 Leverage multiples & equity contributions Pro Forma Debt/EBITDA Ratios - Europe Acquisition Capital Structure Average Leverage Levels Sponsors take on a higher share of buyout financing 7.0x 12x 6.0x 10x 5.0x 4.0x 3.0x x 6x 2.0x 1.0x x 2x 0.0x x First Lien/EBITDA Other Debt/EBITDA Debt/EBITDA Equity/EBITDA Other/EBITDA Source: Standard & Poors Source: Standard & Poors Senior Leverage multiples in the 3-4x range, up from 2009 levels Total leverage up to 4.5x Equity contributions north of 50% Mezzanine (if used) accounts for 5% - 15% of deal structures 6

7 PLC equity issues IPO vs. follow-on/secondaries UK Equity Market Issues ytd (bn) YTD 13 Source: Bloomberg IPO Funds Raised Additional Equity Raised Financial fundraisings accounted for 75% of all equity raised in 2009 and 32% 2010 ytd 2010 deals include IPO of Betfair, Kabel, Amadeus, Promethean 20 PE backed IPOs have been pulled ytd and 50% of listings priced below the range Public market values not attractive for IPOs Over next 12 months, IPO focus will be on growth stories in healthcare, technology, energy NASDAQ and Asian markets generally more attractive (given growth criteria) 7

8 Public market valuations 10 Year Forward Based P/E Valuations 30x 25x 20x Forward P/E 15x 10x 5x 0x Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Source: Factset S&P 500 FTSE All-Share Irish market underperforming UK/US UK market trading at 10-11x P/E close to 10 year lows Sovereign issues, as well as fears of further economic pressures weighing heavily on markets 8

9 UK Survey of 150 CEOs/CFOs Survey of 150 CEOs/CFOs in UK Majority of people believed that the funding environment was static (i.e. not improving) 59% felt that majority of financing would come from internal cash-flows for next 12 months 85% of respondents said that no government funding has filtered down to UK business Banks are conservative, want increased security and higher lending costs Relationships with banks are strained, time spent with bank has increased, trying to diversify lenders, terms renegotiated Trends - Asset backed financing/id - more capital efficient for banks (move away from overdrafts as companies charged for undrawn commitments) 9

10 Mergermarket Restructuring Survey 125 legal/financial advisors interviewed across US/Europe and asked about environment for restructurings 50% believe that restructuring activity will increase Primary driver of restructurings over next 12 months will be driven by banks refinancing debt Non-core asset sales set to increase Real estate, financial services and retail sectors continue to be the sectors which are most distressed Corporates continue to try and increase maturities of bank facilities (as banks push for restructurings) Time for strategic buyers is good as financial buyers struggle to hit returns because of lack of leverage Even healthy companies are finding it difficult to refinance Vast majority of leverage loan proceeds have been for refinancing in Europe c. 46% 10

11 Cash Conservation in Ireland 12% 10% Title:Irish household savings ratio % of disposable income 8% 6% 4% 2% 0% e 2009f 2010f 2011f Source: CSO, Goodbody estimates 11

12 Irish Complacency? Government credibility Public sector spend Real interest rates ECB rate rises 12

13 Irish Budgets & Banking Oversight? 13

14 The new face of banking! 14

15 Lenders in recovery mode Will not solve other banks problems Vendor financing PE underwriting Portfolio mode 15

16 The Business Decline Curve Earnings Management Denial Health Balance Sheet Strain Options Cash Crisis insolvency Time Consensual Change Enforced 16 Source: A Practical Guide to Insolvency Kavanagh Fennell

17 The Solutions Profits Improvement Consultancy Turnaround Management Health Restructuring Options Moratorium Liquidation Time Consensual Change Enforced 17 Source: A Practical Guide to Insolvency Kavanagh Fennell

18 Managing your banking relationship Keep the bank in the loop Understand what the bank wants Take responsibility for the problem and the solution 18

19 Debt Facility Variables Term Margin Debt Service Cover Ratio Debt to equity ratio Debt repayment profile Swaps / accreting swaps 19

20 Restructuring a loan the options Extend maturity date Modify covenants Interest only payments Defer principal and interest payments Reduction in interest rate Forgiveness of principal and past due interest Debt to equity conversions 20

21 Equity 21

22 Company capital lifecycle Capital Generated Delta Fountain Kernel/Seroba DfJ Esprit Atlantic Bridge Balderton UB Diageo VF Brokers TVC BES Banks Institutional Institutional Retail SWFs Banks UK PE Start up Development/ Venture Expansion/ Growth Maturity Decline Angels Founders/Promoters HNWs Pre-IPO Family Offices Funds E.I. Venture International Venture Small cap funds Brokers Permira, Gresham BoI, Ulster, Barclays, HSBC, Rabo (Food) Capital Required 12

23 Sources of equity Friends & Family HNW BES EI - HPSU Delta, AIB Seed Capital Fund, Enterprise Equity, Kernel (incl Seroba), Fountain, DfJ Esprit, Atlantic Bridge 23

24 Irish market M&A levels still remain subdued Some domestic in-market consolidation (ESB/NIE, SWS/BG) Vendor financing increasingly evident Value still an issue for sellers (resulting in pulled deals) Some bank related restructurings (debt for equity swaps) Most banking is purely the refinancing of existing credits Barclays/HSBC coming into syndicates in selective deals Internationally focused companies in technology, pharma & medical devices sector more attractive for Banks to finance Number of providers of finance set to decrease (same new names appearing in the UK) Domestic private buyout capital is seriously impaired Gap presents itself in the market for those that are willing to commit capital to growth and buyout capital at smaller levels Growth capital deals with scale attractive to overseas investors Some evidence that domestic VCs are active on earlier stage fundings 24

25 Conclusions look on the bright side Take advice early challenges and opportunities Markets will improve 25