Breaking through the growth restrictions
Martin Williams
Director, Large Corporates – Eastern region
Santander UK
12th September 2012
Background
 Banking crises 2008 onwards
 Credit markets tightened
 Balance sheet v P&L for Banks
 Basle III capital restrictions
 Political intervention?
 QE & Interest rates
 Continued economic uncertainty
 Euro contagion
1
Result (1)
 CASH IS KING!
 Greater analysis of every loan application
 Quality of credit submissions paramount
 Grey hair / no hair increasingly important!
 Bankers must prove actions taken to address impact of
recession
 Financial evidence that business can demonstrate
improving trends and impact of growth
 Greater reliance on external professional advisors due
diligence
2
Result (2)
 Certain sectors faring better than others (eg.
Manufacturing / utilities), but established Banks may
face “caps” of exposure; reluctantly lending if they
have to, encouraging exit if they don’t
 Santander and other “insurgents” looking to back
better businesses regardless of sector – how good is
management and their professional partners?
 Consider other options (new markets / Local initiatives /
LEP / additional debt / Regional Growth Fund / Venture
Capital etc)
3
Breakthrough programme
The Breakthrough programme will invest £200 million in fast-growth SMEs, supporting
local enterprise and community initiatives, creating jobs, inspiring entrepreneurs of the
future and turbo-boosting a private sector led economy
1. Breakthrough Growth Capital
2. Breakthrough Live
Santander has up to £200 million to invest in fast-growth
SMEs turning over between £500k – £10m across the UK.
The investment programme will run over the next 3 – 5
years and invest in up to 200 SMEs.
Santander is running regional Breakthrough Live
conferences for fast-growth SMEs. Working with Santander
Universities the Breakthrough Live conferences bring
together leading entrepreneurs to share experiences.
3. Breakthrough Masterclasses
4. Breakthrough Talent
Santander is running a unique experience programme for
fast-growth SMEs that takes them behind the doors of the
world’s most iconic and best fast-growth businesses, to
learn first hand how they did it – real experience to help
their own growth journey.
Santander has launched an online portal for SMEs
participating in the Breakthrough investment programme to
access the best student and graduate talent across our
partner University network – including Universities in
Scotland.
5. Breakthrough Responsibly
In keeping with our focus on responsible business,
Santander has launched a number of initiatives to
encourage more responsible and inclusive business
practice and to invest in Social Enterprise development.
6. Breakthrough International
This initiative will help SMEs participating in the
Breakthrough programme to reach new overseas markets if
their growth plans and ambitions are beyond the UK. It
includes subsidised trade missions, educational roadshows
and support accessing information on exporting.
What is Growth Capital?
 Growth Capital is one of the pillars of the SME
Breakthrough Programme
 www.santanderbreakthrough.co.uk
 Santander has committed to make available £200m of
funding to support high growth SMEs that have advanced
beyond the start-up stage.
5
High Growth firms: locations
The number of High Growth firms has not changed much despite
the recessionary pressure. They employ almost 50 % of work force
5 years of successful growth, higher gearing, lower solvency rate
Our product was designed to address the financing gap
GAP
Growth capital
Criteria
10
We are looking to invest in SMEs with the following broad
characteristics:
 Annual turnover £0.5m – £10m although flexible
 Minimum 3 year trading history
 Strong p.a. growth in a combination of sales, profits and / or
employee numbers
 Track record of sustainable operating profitability and cash
generation
 Proven management team
•
Businesses need not bank with Santander today but would have to
bring their banking to us to benefit from a growth capital loan.
Product features
11
 Santander Growth Capital is a debt product rather than an equity product.
 Subordinated behind conventional senior bank debt as a mezzanine loan which
allows a greater risk / return profile.
 The typical, key characteristics of the product are:
– Loan amounts:
£0.5m to £3m (in addition to senior debt)
– Term:
3 to 7 yrs
– Pricing:
10% margin (5% above LIBOR paid
quarterly; 5% rolled up and capitalised)
– Repayment:
Bullet or refinance – no interim capital
repayments
– Security:
Second ranking security for the
subordinated loan
12
Benefits
For SMEs
 Debt finance support is not limited to available security.
 Flexible form of financing supporting development / growth capital
projects and initiatives.
 Management do not need to dilute their equity ownership.
 Due diligence process is quicker and less expensive than for equity
financing.
 Free, extensive ongoing support with additional training and
mentoring from “Breakthrough” activities.
 No early repayment penalty.
Purpose and Practicalities
•
Financing must be growth initiative led with a clear benefit to the
business.
 Projects need not generate new employment but these cases will
be viewed favourably.
Example projects might include:
 Investment in a new production line
 Implementation of a new IT platform
 Creation of an HR function
 Exploration of overseas markets or manufacturing
•
•
What these examples have in common is that they are all asset light
from a security perspective but ultimately value creating.
We will not be attracted to deals where the majority of the investment is for refinancing existing debt
or facilitating cash out to shareholders. We also expect to be supporting owner-managed
businesses rather than those who have already secured institutional equity investment.
13
Summary
If you are waiting for things to get back to the
2007/8 environment, you may have a (very)
long wait
Now is the new norm
Growth is achievable with the right support
Invest the time in sourcing suitable partners;
use what is out there
Believe in yourself and your business
14
Important Notice
•
•
•
The information and opinions in this document have been compiled by Santander Corporate Banking
in good faith from sources believed to be reliable. The information and opinions contained in this
document are published for the assistance of the recipients but they should not be relied upon as
authoritative or definitive and should not be taken into account in the exercise of judgements by any
recipient. Distribution of this document does not oblige us to enter into any transaction. Any offer
would be made at a later date and subject to contract, satisfactory documentation and market
conditions. Nothing in this document constitutes investment, legal, tax or accounting advice and we
recommend you do not make a decision based on this information without first taking the appropriate
advice. This document is intended for recipient only, should not be disclosed to retail clients, and
should not be distributed to others or replicated without the consent of Santander Corporate Banking.
Santander Corporate Banking is the brand name of Santander UK plc, Abbey National Treasury
Services plc (which also uses the brand name of Santander Global Banking and Markets) and
Santander Asset Finance plc, all (with the exception of Santander Asset Finance plc) authorised and
regulated by the Financial Services Authority, except in respect of consumer credit products which
are regulated by the Office of Fair Trading. FSA registration numbers: 106054, 146003 and 423530
respectively. Registered offices: 2 Triton Square, Regent’s Place, London NW1 3AN and Carlton
Park, Narborough LE19 0AL. Company numbers: 2294747, 2338548 and 1533123 respectively.
Registered in England. Santander and the flame logo are registered trademarks.
.