KPMG Corporate Finance
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Corporate Finance HDbk 3rd 28/04/2004 10:23 Page 1 the corporate finance handbook Corporate Finance HDbk 3rd 28/04/2004 10:22 Page 1 the corporate finance handbook 3rd edition consultant editor jonathan reuvid forewords by sir edward georgegovernor, the bank of england david irwinchief executive, small business service ROYAL SUN ALLIANCE 1P COL ADVERT TENON 1P COL ADVERT THE CORPORATE FINANCE HANDBOOK Third Edition LEE CROWDER 1P COL ADVERT THE CORPORATE FINANCE HANDBOOK Third Edition Publisher’s note Every possible effort has been made to ensure that the information contained in this handbook is accurate at the time of going to press, and the publishers cannot accept responsibility for any errors or omissions, however caused. All liability for loss, disappointment, negligence or other damage caused by the reliance on the information contained in this handbook, or in the event of bankruptcy or liquidation or cessation of trade of any company, individual or firm mentioned, is hereby excluded. This third edition published in 2002 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act, 1988, this publication may only be reproduced, stored or transmitted, in any form, or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms of licences issued by the Copyright Licensing Agency. Enquiries concerning reproduction outside those terms should be sent to the publishers at the undermentioned address. Kogan Page Ltd 120 Pentonville Road London N1 9JN www.kogan-page.co.uk © Kogan Page and contributors 2002 British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library ISBN 0 7494 3375 2 Typeset by Saxon Graphics Ltd, Derby Printed and bound in Great Britain by Thanet Press Ltd, Margate Contents Forewords Sir Edward George xi Governor, Bank of England David Irwin xiii Chief Executive, Small Business Service About the Contributors xv Introduction Jonathan Reuvid xxi Part One: The Corporate Finance Environment 1 1.1 Strategic Considerations – Making the Right Choice 3 Shiju Varghese, Tenon Corporate Transactions 1.2 Financial Market and Business Conditions for SMEs 9 Jonathan Reuvid 1.3 Small Business Service (SBS) and SME Finance 17 Adrian Piper, SBS 1.4 Finance for Technology-based Small Companies (TBSFs) 25 Jonathan Reuvid 1.5 Modern Company Law for a Competitive Economy – Final Report from the Company Law Review Steering Group 31 Keith Baxter, Royal & SunAlliance ProFin Part Two: Debt Finance 37 2.1 Structured Finance 39 John Bagley, NMB-Heller 2.2 Asset-based Finance 45 Forward Trust 2.3 Finance for Foreign Trade 55 Jonathan Reuvid 2.4 Legal Issues for Failing Companies and Corporate Rescue 63 Carrick Lindsay, Lee Crowder 2.5 A Glossary of Debt 73 Christopher Gasson, Bertoli Mitchell Part Three: Private Equity 81 3.1 Trends in Private Equity 83 Michael Joseph, Lloyds TSB Development Capital viii Contents 3.2 Shaping Up for the Market 91 Mike Stevens, KPMG Corporate Finance 3.3 Raising Venture Capital – A Working Guide for Entrepreneurs 95 Nick Jones, Tenon Group 3.4 Legal Due Diligence Issues 101 Gregory T Emms, Lee Crowder Part Four: Public Equity 113 4.1 Flotation 115 Gary Peters, Old Mutual Securities 4.2 Public Equity Markets 137 Jonathan Reuvid 4.3 Taxation Aspects of Flotation 145 Maurice Fitzpatrick and Jay Sanghrajka, Tenon Group 4.4 Legal Aspects of a Company Flotation 153 Mark Gibson, Lee Crowder 4.5 Public-to-Private Transactions are Here to Stay 163 Charles Milner, KPMG Corporate Finance Part Five: Mergers and Acquisitions 169 5.1 Buying a Business 171 David Houghton, TMG Corporate Finance 5.2 Thinking of Selling Your Business? 181 Tony Sharp, KPMG Corporate Finance 5.3 Valuation 187 Christopher Gasson, Bertoli Mitchell 5.4 Management Buy-outs – a reality check 197 Stephen Craik, KPMG Corporate Finance 5.5 Legal Aspects of Management Buy-outs and Acquisitions 203 Richard Murrall, Lee Crowder 5.6 Tax Aspects of the Purchase and Sale of Private Companies 215 or their Businesses Maurice Fitzpatrick and Jay Sanghrajka, Tenon Group Part Six: Management Issues in Generating Investment 223 6.1 The Business Plan – Making it Fly 225 Shiju Varghese, Tenon Corporate Transactions 6.2 Building the Management Team 235 Charles Russam, Russam GMS Limited 6.3 Enterprise Management Incentive (EMI) Schemes 245 Maurice Fitzpatrick and Jay Sanghrajka, Tenon Group Contents ix 6.4 HR Issues Arising from Acquisitions 251 Judy Brown 6.5 Effective Environmental Due Diligence 269 William Butterworth, RPS Group Plc Part Seven: Directory of Corporate Finance Service Providers 273 7.1 Financial Advisers 275 7.2 Legal Advisers 285 7.3 Private Equity Sources 307 7.4 Stockbrokers and Money-makers 317 Contributors’ Contact Details 325 Index of Advertisers 327 RPS 1P COL ADVERT Foreword I am very happy once again to contribute this Foreword to The Corporate Finance Handbook. The Bank of England continues to take a close interest in the availability of finance to firms of all sizes and this falls squarely within one of the Bank’s three core purposes – that of seeking to ensure the effectiveness of financial services in the United Kingdom. Naturally, our other core purposes – maintaining the integrity and value of the currency and maintaining the stability of the financial system – also play a vital role in creating an environment in which businesses can plan confidently for the future. During the late 1970s and early 1980s, the Bank published its own guide to sources of finance for businesses, Money for Business. More recently, we have produced regular reports on the financing of small firms generally, as well as focusing on the position of particular cate- gories of small firms (particularly ethnic minority and high-technol- ogy small firms). A recurrent theme of our work has been the importance of ensuring that finance is not only available but is also appropriate to firms’ particular needs. I believe that there has been considerable progress in this direction in recent years, but businesses still need to know where to look for what they require. This third edition of The Corporate Finance Handbook, which covers the full range of types and potential sources of finance for small, medium-sized and large firms, makes a valuable contribution towards meeting that demand. Indeed, I hope that it will help businesses to access the finance they need for their growth and development. Sir Edward George Governor, Bank of England Foreword I am pleased to have been invited once more to provide a Foreword to The Corporate Finance Handbook. The Small Business Service is now well into its second year of oper- ation and has made substantial progress towards its aim of making the United Kingdom the best place in the world in which to set up and run a business. The revamped Business Link network in England is now complete, providing a simple route to information and advice for small businesses through a single access point. The other elements of the gateway are also now in place – including a call centre, website and knowledge base. In developing these, the SBS has called upon expert knowledge contained in publications such as The Corporate Finance Handbook. For this edition, the SBS has provided details of the initiatives it is taking forward in the area of SME finance. Alongside its well-established national programmes, such as the Small Firms Loan Guarantee Scheme and the Smart scheme, the SBS has created a UK High Technology Fund and Regional Venture Capital Funds – the latter should start making investments in growth businesses in the regions later in the year. The SBS is also taking forward measures aimed at helping small businesses to better understand the financing options available and to be better prepared to take on an investment. Further details of these initiatives are provided in Chapter 1.3. David Irwin Chief Executive, Small Business Service About the Contributors Bertoli Mitchell Established in 1994, Bertoli Mitchell is an M&A boutique specialising in the publishing sector. Christopher Gasson is a corporate financier and financial journalist, and an associate at Bertoli Mitchell. He is author of Media Equities: Evaluation and Trading, published by Woodhead Publishing. Judy Brown Judy Brown has advised corporate financiers and boards of directors on HR issues in corporate acquisitions and management buy-outs for many years. A Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the Chartered Institute of Personnel and Development, she combines a financial approach and regulatory awareness with an understanding of HR strategy and best practice. Forward Trust Forward Trust Limited is one of the UK’s leading providers of asset-based services and finance, employing some 1,200 people. From vehicle fleet management to complex asset financing for major pro- jects, Forward Trust has the experience and expertise to provide solu- tions for commercial organisations. A wholly owned subsidiary of the HSBC Group – one of the world’s largest banking and financial services organisations – Forward Trust has assets in excess of £5bn. Forward Trust operates brands within three strategic market sec- tors: rail, cars and commercial vehicles; and their respective related services. Forward Trust has a strong commitment to providing added value services. The need to differentiate and generate a competitive edge through the quality of customer service is a key priority. xvi About the Contributors KPMG Corporate Finance KPMG Corporate Finance provides financing and investment bank- ing advice to quoted and private companies and public sector bodies. It acts as lead adviser and deal manager on the full range of corporate transactions including M&As, disposals, structured and project finance, leveraged buy-outs, public securities offerings, privatisations and valuations.