SMEs: get into shape for growth or exit

INTERFINANCIAL  managing director Sharon Doyle has a word of advice for SMEs struggling to make headway: it’s never too late to get your act together.

To realise the value of your business – and give yourself choices – you cannot avoid getting your business into the  kind of shape that might attract investment or buy-out offers. In fact, InterFinancial has seen new avenues of investment coming available for Australian businesses this year.

InterFinancial Corporate Finance is more than your average business advisory service.  It is an organisation of SME specialists who are as equally at home advising on mergers and acquisitions (M&A) as they are in sourcing capital for growth – and helping companies get ship-shape to maximise that growth. 

InterFinancial is one of the organisations that International Leaders founder James Paulsen describes as a “go-to” organisation for leaders and owners of fast-growth companies – in fact InterFinancial has been part of the Leaders’ Industry Expert quorum for many years.

“We work mostly with mid-range businesses who might be making a couple of  million dollars profit a year through to $20-$30 million profit a year, helping them to grow their businesses and helping them to access capital to grow their businesses,” Ms Doyle said. “And ultimately helping the owners to realise that financial asset that they have built. Basically, we work with owners and their management teams as their businesses grow.”

When the time comes, InterFinancial helps shape and implement exit strategies.

“From a market perspective, we work with an owner to explain how an investor or a bank might provide you with capital along that path. How would they look at your business? What would they think is valuable and important?”

Ms Doyle classified the current business environment as “very interesting times”.

“We see lots of interesting companies,” she said. It always fascinates us how people get the idea to even start this business and build something new, always in a market in which we might think, surely someone’s already tackled that? And then they bring in this business and you say, wow, that’s really exciting. In the last six months we have been seeing businesses coming in that have found a niche that is very rapidly taking them global.” 

One Brisbane company they are working with has created something new “that international parties are saying, we’d love to work with you to take that international because it has captured an opportunity that nobody else has been able to tackle”.

“And they need funding, obviously to be able to do that,” Ms Doyle said. She said businesses at the moment with innovative products had two recent advantages.

“One, the internet has made it easier for companies to validate that their product has global application. The second thing is that I think growth capital has become more available in this market in the last 6-12 months … it’s like the response has shifted in the market from, ‘it’s great that you have got a good idea, but no-one will ever fund that’ to ‘actually that’s really interesting and we can see the global application’ and there are people in the market now willing to fund those early stage businesses.”

Innovative SMEs may find their funding in the sun is about to come.

“I think now people have realised that this market is exciting – the scalable return you can get on technology investments – and that has started to attract the money,” Ms Doyle said. “We are seeing a lot of family (based funds) and small private equity funds start to spring up in the market which didn’t exist two years ago.

“I’ve got to say, it is an exciting part (of the market) but it has historically been very difficult to get money into it – there was a big gap between government funding and small angel funding, and then the much bigger venture capital investors would start investing. There was a large gap there. It was through that gap that you really needed a little push along.

“What we have found now is that the small family offices and the small funds, a couple of which are listed, have started to say we will write a cheque between $1-5 million – and that area just hasn’t been serviced well in the past.

“This particular money I am talking about is Australian. It is frequently families who have built a great business and they have sold that asset and they have a substantial sum of money – so it is, if you like, large angels. … who understand business and have built something themselves. They understand that sometimes you need a little bit of a push to get across that growth hump. They have got a willingness to accept some risk – which I think is something that has been missing in the market.”

But that is not the only source of capital InterFinancial has seen come on recently.

“The other source that we have found to be more flexible and available in the last few years has been strategic investors,” Ms Doyle said. “Trade players, larger companies who see that what you are doing is interesting and aligned to what their business might be. We are seeing them take minority stakes to support growth.

“I think a lot of the venture money will still gravitate towards technology or IP rich companies. There is a view that they can scale rapidly and you get a better financial return.”

While funding for business growth is more available than it has been for many years, but Ms Doyle warned, “Let me be clear, it’s not easy. But it is not impossible any more.

“It’s still quite challenging and there is a supply and demand in balance. But good strong businesses, with a well-articulated growth story, are definitely having more than one opportunity to secure an investor.”

Importantly mergers and acquisitions had bounded back.

“M&A is up,” she said. “Remarkably so. It has been escalating over the last year. This year we have seen a substantial increase in enquiry.

“Interestingly there was a sense that the push for M&A would be owners of businesses that were tired from operating in a difficult market for an extended period of time, who simply wanted to exit.

“Instead, what we have seen is that larger players are taking advantage of a market in which there are very low interest rates, and a view that there will be sustained low interest rates, to make strategic acquisitions that help them achieve their own organic growth goals.”

The risk is that a business may not be ready for such an approach, which is where InterFinancial comes in.

“Many of these businesses are on an interesting growth plan,” Ms Doyle said. “If you take a look of their historical earnings, that really doesn’t give any value for the upside that they are creating and the opportunities they have invested in over the next several years.

“But to capture value for the future, you need to be able to tell a very clear story.  Often the owner knows and understands and sees it, but is not used to having to articulate it. To be able to have somebody else who is able to say, here are the things that we need to put in place to be able to demonstrate the vision and capture that value, it’s pretty important.

“That’s where we come in. It is also important to manage the risk in those transactions. If you have a competitor coming to acquire you and you are sharing a lot of data, it’s a bit tricky.”

www.interfinancial.com.au

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