13 Mar 2023
Raising money in the current economic climate is still possible but to be successful, it’s important to follow a careful process.
Lenders are currently cautious when dealing with recruitment businesses, as although employment remains buoyant, they are looking forward into the year and the potential for this to fall away, should economic conditions worsen.
Is debt still available?
Cheap debt is becoming scarcer, however, debt has not gone away.
The debt market isn’t one single ‘market’ as it is often portrayed. In fact, there is a wide range of players in the market who hold a range of credit views. This is very similar to a typical merger and acquisition (M&A) process with multiple bidders and multiple views.
Appetite to lend remains high amongst a range of funders in the market and includes debt funds who have dry powder with high levels of funds to deploy, as well as banks and Asset-Based Lending (ABL ) lenders still very much charged with using their balance sheet.
Have leverage multiples reduced noticeably?
It’s hard to quantify the change in credit appetite in the mid-market. Instead, it is more accurate to measure this using a qualitative approach. Typically, lenders will zero in on the business case for the company to get through hard times.
Qualitative factors are likely more important where lenders will be keen to understand the stickiness of customers, and customer concentration for recruitment businesses.
What can be done about it?
To gain the optimal debt structure with appropriate pricing, businesses will need to plan ahead and cast the net wide in terms of their lending options.
- Make sure you are fully prepared with your credit case.
- Lenders now expect borrowers to have an adviser to help them present their plan in the most convincing way.
Casting the net wide
- Consider approaching lenders from outside the mainstream – a wider range of lenders are more available than ever before.
- This may be more costly than traditional bank debt but may well provide a better solution to businesses.
Going smarter and wider involves running a proper process – RSM’s debt advisory team can assist in structuring an appropriate debt facility based on what the business requires, as well as what is most feasible and practical.
ABL (receivables or invoice-based financing) is often a good source of debt for temp-focused recruitment businesses, due to the high level of trade debtors. If debtor capacity is currently under-utilised, there may be scope to increase a company’s borrowing. Some lenders will also add a term loan on top of the ABL borrowing, “ABL plus”. This allows a company to borrow based on the debtors, as well as on a multiple of the EBITDA , thereby maximising capacity.
Permanent focused businesses are more likely to borrow using term loans based on a multiple of EBITDA – borrowing via this route is dependent on convincing lenders that the forecasts are conservative and well-grounded in the historical performance of the company.
How can RSM help?
Our experienced team has access to a full range of debt providers, including mainstream banks, challenger banks, debt funds and ABL lenders. We can help borrowers get the right deal at the right price.
We can help with financing for growth and acquisitions, as well as for working capital, recapitalisations and refinancings. We have a strong track record, having completed over 30 successful transactions, with an aggregate debt raise of approximately £700m.
RSM debt advisory
The RSM debt advisory team is a dedicated mid-market advisory team that helps businesses to obtain debt funding. The team has a track record of successfully raising debt across all types of transactions, be it growth capital, acquisitions, or simply a refinancing.
The team is highly experienced and adds value to the debt raising process in a variety of ways, helping to market the borrower to lenders and negotiating the best possible deal for our clients.
For more information, contact Greg Moreton to discuss your business needs.