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8th March 2009
CAT.186
BFM (Annual Corporate Finance Review)
Turmoil in the world’s banking and financial markets has created an investment vacuum and, according to Rob Carroll, Managing Director of Catapult Venture Managers, we are now sailing in unchartered waters.
Whilst many of us could see – but not necessarily wish to express the fact that we were moving into a major economic downturn towards the end of last year – I don’t think anyone could have predicted the scale of the current financial crisis.
For Catapult, 2008 was our best year ever with the completion of nearly 30 transactions, many of which were completed in the second half. During this period we could see that the economy was falling back sharply and that most of the banks were reigning in, or had stopped new lending. Catapult, however, was fortunate to be bucking the trend at that time and, in the third quarter, we completed 11 transactions during this period.
Our investments last year included the multi-million pound buyout of BWB Consulting Ltd, a significant development capital investment into e-learning specialist AtlanticLink Limited; and an early stage investment into CellAura Technologies Ltd.
Among our other investments was the BIMBO of Sight and Sound Technology in Northampton: one of the UK’s leading suppliers of IT products and services for people who are blind, visually impaired or have learning difficulties.
The second half of 2008 saw a general slide in the well-being of the UK economy and this had a major impact on confidence. However, we continued to invest including £850k into Key Technologies as part of £1.8m being raised through flotation on virtual trading platform Investbx.
Some people may be surprised by the size of the transactions that Catapult is getting involved in. The Key Technologies, BWB and Sight & Sound deals go to show that with equity available of up to £2m, we are able to provide meaningful levels of equity to larger businesses than are historically associated with our funds.
So where are we now? Well our doors are well and truly open for business and we have money to invest. Our £30m Catapult Growth Fund – launched in early 2007 – has already invested £5.8m into businesses primarily in the Midlands region and can provide funding for up to £2m of development capital or finance for MBO’s and BIMBO’s.
Clearly, investment confidence is currently at a low ebb. Many owners are reticent to invest in their businesses during these uncertain times and funders – like Catapult – with money available are clearly more cautious in this respect than we were 12 months ago. Nevertheless we will continue to invest in good quality businesses with strong management teams on board.
However, owners need to be realistic in the valuation they place on their businesses. Prices have fallen back sharply even from three months ago, due to the uncertainty within the global economy and the impact this has had on the Midlands region.
We are primarily looking to invest in economically robust businesses. This includes enterprises that are currently finding themselves with rather too much exposure to debt and would benefit from reducing this by way of an equity stake.
Whilst Catapult invests in enterprises that require cash in order to move forward to the next stage of development, we are not here to provide ‘stop-gap’ funding to struggling businesses just to enable them to survive the next ‘cash-flow’ problem, unless of course they have a plan on how they will change to survive and prosper.
Investment needs to be made against a business plan with clear objectives. We will consider backing an ailing business if we can identify the ‘untapped’ opportunities that exist and understand why it has underperformed in the past.
I’m quite often asked my opinion as to when the current recession is likely to ‘bottom-out’ and the truth is I just don’t know. Hopefully, if the banks start lending - sooner rather than later - the recession won’t be as deep as many of us anticipate.
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For further information please contact Rob Carroll at Catapult Venture Managers on 0116 238 8200 or 07976 226252, or Paul Shrimpton at PSPR Ltd on 0121 354 7311 or 07979 505322
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