Our client is a 55 year old property group based in the South East. The business at its peak in 2007 had a portfolio of industrial/commercial property totalling £60million, against bank loans of £29million.
Roll forward to 2012, the values had almost halved. LTV had increased to a level that was no longer market-facing, covenants had been broken and the banks sought action to resolve their positions. To make matters (far) worse, in the growth years the business had agreed to take on new derivative products offered by their bankers.
They built up considerable fixed interest rate swaps giving them at their peak notional borrowings of £41 million. Historic low interest rates meant that the benefits of these swaps never materialised and actually our client ended up paying interest on loans it had not drawn down upon.
Whatever the arguments and rights and wrongs of the swap market, particularly the impact upon SME’s, the fact was that our client was faced with the complete breakdown of their relationships with their banks, a business rapidly running out of cash and Hobson’s choice of selling assets quickly to keep above water or letting the banks take the whole lot and dispose of them. The directors & shareholders, once sitting on a net asset value of £30m, had seen the entire value wiped out, almost without being able to take action to prevent this.
Beer & Young were introduced at the very end of 2013. Our remit broadly was to act as a conduit between the board and their bankers, raise capital for the group, and help deliver value back for shareholders – given that the market had finally turned and values were on the up again. We recognised that the most important task at the outset (and throughout the process) was to ensure that we (our client and B&Y) had the support of the two banks. Without this any deal would have failed.
Key achievements
- Acted swiftly to restore confidence of the bankers, ensuring good cashflow and gaining time to implement our strategies
- Strategies were put forward and agreed with the board
- In early 2014, we introduced potential investors and buyers for the group. Early on it became clear this project was a business sale remit, not one of simply raising capital
- One potential buyer stood out, Heads of Terms were agreed. The buyer is an AIM listed property group
- We negotiated with both banks through every step of the transaction. Combined debt in excess of £34million
- Negotiated £5m write off from one bank
- Helped negotiate terms for the shareholders, maintaining good value
- Worked with all parties – client, buyer, two banks, too many lawyers(!) to a successful conclusion
The conclusion to this project was a client who achieved nearly £3.5 million in shareholder value from a position of zero when we were appointed, with an overall business value of £32.5 million. The buyer has bought a high quality portfolio with all prior banking agreements, including both SWAPs, having been cancelled.
a note from the client…
I cannot express enough my gratitude to you and your team in our hour of need. Your advice and strategy for dealing with our bankers and other key stakeholders could not have been more effective. Value was delivered to shareholders from the dire position of the company in late 2013. Shareholders can now look forward again to the security of being part of a larger group and benefit from a growing dividend. I am happy to recommend B&Y to any business owner feeling the pressure we did. Very many thanks to you and your colleagues for bringing this to a successful conclusion. It is the end of an era for all of us and we are happy to be moving forward.
Richard W, CEO
Property Group
