Case study: Fast company growth brings financing challenges

Pain: Financing of company growth opportunity

A mid-size wholesaler came across a business opportunity on the mature market, that would boost the company growth. The management performed some preliminary market tests first and got a very positive feedback. They were well aware that their reaction needs to be fast and sound if they want to succeed. Main specifics that significantly impacted their response were 1) net working capital intensive business and 2) relatively modest operational margins. The business opportunity is in terms of revenues 5x the current level and large portion of the growth will have to be at least temporarily financed also with debt. This was the reason why Consilue was engaged – to advise the client on the most appropriate financing mix, play its role of the independent trust-worthy intermediary and to speed up the process of gathering funds.

Addressing the pain: Growth strategy comes first

The scale of the opportunity surprised everyone in the company. Since the client had at that time relatively modest understanding of the developments that resulted in it, the project was approached more strategically. Consilue dig into the understanding of the structural changes first. The market analysis and the industry analysis pointed out significant moves on both supply & demand side. To name the most significant ones:

– opening of the market for more competitive non-EU suppliers (release of EU tariffs & quotas)

– competitors have long-term trading alliances linked to EU suppliers and are non-responsive

– concentrated industry, but very rigid competition

– tensions of clients to seek new, more flexible alternatives to intensify the competition

After in-depth financial and business analysis of the company, we figured out that the competitive advantage of the client on which the idea of the future success is based, significantly depends on the particular currency exchange rate and can therefore be of temporary nature. There were also speculations about the possible responses of dominant players which are financially much stronger and already have all the facilities needed.

Reflecting all these facts, the Consilue together with the company management prepared the financial projections (income statement, statement of financial position, cash-flow statement) under various scenarios of corporate growth development. The projections revealed the financing needs as well as most optimal financing mix and the target maturities. Based on the findings the communication and negotiation with governmental crediting institutions and commercial banks continued.

Due to the temporary nature of the competitive advantage, the client was also advised how to act after they gain their target market share in order to rather develop a long-lasting competitive advantages and thus consolidate their position on the market.

Results: Company growth financing CHECKED

The client received the funds in very short time period. Consilue supported the client in the process of funding with value-added advices. Thanks to us, the client was able to replace part of its current funding activities (factoring; non-competitive interest rate loans) with carefully selected, less risky in terms of maturities, cheaper and more tailored sources of funding.

Client’s testimonial:

We are fully equipped for our attack. We understand the background. We did not lose much time. We fully & truly believe into this opportunity. So let’s attack!

Thanks to our consultants for a great support, responsiveness and proactive thinking. Also the approach to financing is smart – we will leverage the company gradually as the business progress, we carefully chose the liability types and select the maturities in a way that related risks are minimized.

Advisor’s thought:

In cases when a company comes across such a big business opportunity and the financing needs for company growth increase so much, that it might be challenging to persuade risk-averse creditors such as banks and governmental institutions. In these cases, the key role in the process is carried by the consultant, who independently reviews the feasibility of the project, review the growth strategy and underlying risks, estimates the financing needs, determines the optimal financing mix, attributes most appropriate types of funding, maturities etc. With the help of the consultant often not only the funding is agreed faster, but also the costs of company growth financing decrease, since the future business risks are perceived as lower and funds gathering process is normally more transparent and straight-forward.

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