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| Share Buyback

A simple strategy you’re not using to create liquidity without giving up control

Do you want to extract value from your business to reward yourself for the hard work you’ve put into building it?

Picture this, you’re the founder of an owner-managed or VC backed tech company, and you’ve worked hard to move it into profitability. What’s more, you have a healthy cash flow.

You’d like to unlock part of the capital tied up in your business so that it can be reallocated to other projects, or for retirement planning.

But at the same time, you do not want to relinquish your controlling interest.

The good news is you can raise non-dilutive debt to recapitalise your business so that you can fund a partial equity release. 

In other words, you can raise debt to support a partial cash-out of your business.

Download our eBook Your blueprint for cashing out of your tech business to find out how.

Cashing out of your tech business

So what makes raising debt to cash-out of a tech business so special?

 

If you think about what is important to you when raising any form of capital:

  • Time to set up a transaction and to access funds
  • Equity dilution
  • The cost of capital

 

Then raising debt provides the answer.

Recapitalising your business with debt so that you can fund a partial cash-out is a transaction that is relatively quick to set up.

When you raise debt, you retain a controlling interest in your business, because when you raise debt, you do not dilute equity.

And given the current economic climate, when you raise debt, you can take advantage of low-interest rates to get a low cost of capital.

 

That’s all very well, but I can’t imagine banks supporting cash-out transactions

 

And you’d be right.

But in direct contrast to conventional bank lending, private debt funds can provide more flexible loan structures, as well as unsecured options. 

What’s more, because many private debt funds focus on sector niches, they can provide less restrictive terms, including less stringent covenant packages.

 

How much equity can I release from my business?

 

The amount of equity you can release from your business depends on your:

  • Turnover (must be over £5m)
  • Profitability
  • Continued opportunities for growth
  • Strength of cash flow
  • How leveraged your business is

 

OK, I’m convinced… What do I do next?’

 

Download our Blueprint for cashing out of your tech business eBook’.

Not only does it describe in detail how you can raise debt to extract value from your tech business, but it also sets out how you can use a partial cash-out to:

  • Buy out a departing shareholder
  • Reduce time-consuming admin by buying out small investors and tidying up your cap table
  • Take charge of your company’s financial destiny, by raising funds to buy out your VC
  • Get employee commitment to help your business to grow/handle succession changes, by raising funds to set up an Employee Ownership Trust
  • Raise money to fund an MBO

 

To sum up

 

If you want to unlock part of the value tied up in your business so that you can enjoy the perks of being a successful owner, without disrupting your business, then download our Blueprint to cashing out of your tech business.

And if you need more guidance about your options for cashing out of your tech business, get in touch.

How to take the pain out of buying out a departing shareholder

[Free chapter from my eBook]

 

Do you have a shareholder departing due to retirement, or moving on to another venture? Or indeed as a result of a company acquisition?

Recapitalising your tech business with private debt to fund a partial cash-out is a little known way for companies that do not have cash in the bank to buy back shares from a departing shareholder.

You may think share buybacks are not for your company, because you typically associate them with listed companies, including tech giants such as Apple, Google and Microsoft.

But here’s the thing, companies of all sizes may at some point find themselves in a position where they’ll need to repurchase shares. 

 

What is a share buyback?

According to Investopedia, “Share buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private investors.”

 

What do I need to think about when planning a share buyback?

First off, assess the value of the departing shareholder’s equity. To do this value your business and apply a value to the equity stake associated with the person leaving. 

Then, when you’ve decided upon a value to which everyone agrees, choose the most appropriate funding for the buyback.

 

What type of finance is available to fund a share buyback?

 

Private debt bridging loan

Similar to a traditional bridge loan, a private debt bridge loan is a short-term loan that provides companies with immediate cash flow/capital.

 

A partial cash-out

If you’re not overleveraged and cash positive, you can recapitalise your business with private debt to fund a partial cash-out. You can then use the proceeds of the partial cash-out to buy out your departing shareholders.

 

When should you think about raising finance to execute a share buyback?

Early exit planning gives you the time you need to explore options for raising funds.

Of course, the need to buy out a departing shareholder is just one of the reasons why tech CEOs find themselves in a position where they need to take money out of their businesses.

That’s why I’ve written a handy eBook that outlines six different scenarios in which tech CEOs should consider recapitalising their businesses with private debt to enable them to execute partial cash-outs.

 

Download “Your blueprint to cashing out of your tech business”

Blueprint for cashing out of your tech business

 

Not only does Your blueprint to cashing out of your tech business provide you with a strategy for recapitalising your business with private debt so that you can arrange a partial cash-out to fund a share buyback, but it also sets out:

  • Key features of private debt transactions
  • How to get advice about cashing out of your business
  • What to consider in regards to funding
  • The role a broker has in structuring private debt finance deals on your behalf

As well as an abundance of useful resources.

You can download Your blueprint for cashing out of your tech business here.

And if you’d like additional guidance about your options for recapitalising your business with private debt to fund a partial cash-out of your tech business, do get in touch.

 

How to create liquidity without giving up control

A simple strategy you’re not using to create liquidity without giving up control

 

Do you want to extract value from your business to reward yourself for the hard work you’ve put into building it?

Picture this, you’re the founder of an owner-managed or VC backed tech company, and you’ve worked hard to move it into profitability. What’s more, you have a healthy cash flow.

You’d like to unlock part of the capital tied up in your business so that it can be reallocated to other projects, or for retirement planning.

But at the same time, you do not want to relinquish your controlling interest.

The good news is you can raise non-dilutive debt to recapitalise your business so that you can fund a partial equity release. 

In other words, you can raise debt to support a partial cash-out of your business.

Download our eBook Your blueprint for cashing out of your tech business to find out how.

 

So what makes raising debt to cash-out of a tech business so special?

 

If you think about what is important to you when raising any form of capital:

  • Time to set up a transaction and to access funds
  • Equity dilution
  • The cost of capital

Then raising debt provides the answer.

Recapitalising your business with debt so that you can fund a partial cash-out is a transaction that is relatively quick to set up.

When you raise debt, you retain a controlling interest in your business, because when you raise debt, you do not dilute equity.

And given the current economic climate, when you raise debt, you can take advantage of low-interest rates to get a low cost of capital.

 

That’s all very well, but I can’t imagine banks supporting cash-out transactions

 

And you’d be right.

But in direct contrast to conventional bank lending, private debt funds can provide more flexible loan structures, as well as unsecured options. 

What’s more, because many private debt funds focus on sector niches, they can provide less restrictive terms, including less stringent covenant packages.

 

How much equity can I release from my business?

The amount of equity you can release from your business depends on your:

  • Turnover (must be over £5m)
  • Profitability
  • Continued opportunities for growth
  • Strength of cash flow
  • How leveraged your business is

 

OK, I’m convinced… What do I do next?’

Download our ‘Blueprint for cashing out of your tech business eBook’.

Not only does it describe in detail how you can raise debt to extract value from your tech business, but it also sets out how you can use a partial cash-out to:

  • Buy out a departing shareholder
  • Reduce time-consuming admin by buying out small investors and tidying up your cap table
  • Take charge of your company’s financial destiny, by raising funds to buy out your VC
  • Get employee commitment to help your business to grow/handle succession changes, by raising funds to set up an Employee Ownership Trust
  • Raise money to fund an MBO

 

To sum up

If you want to unlock part of the value tied up in your business so that you can enjoy the perks of being a successful owner, without disrupting your business, then download our Blueprint to cashing out of your tech business.

And if you need more guidance about your options for cashing out of your tech business, get in touch.

How to buy out small shareholders

Are too many small shareholders causing you an administrative headache? 

It’s a familiar problem for fast-growing tech companies. To begin with, you go out of your way to attract small investors. They give you much-needed money. 

In exchange, you give them a minuscule amount of equity as compensation. It’s a win-win situation.

The problem arises when you end up with lots and lots of small shareholders. Because the more shareholders you have in your cap table, the more difficult it becomes to collect their signatures. 

Worse still, the more difficult it is for you to execute decisions.

If this sounds like you, then please feel reassured that there is a solution.

You see, I’ve been there.  At first, I thought my only option would be to enter into some tricky negotiations to buy out my minuscule shareholders.

The good news is, after much exhaustive research, I learnt that I could <raise debt to fund a partial cash-out> of my business. And that I could use the funds raised to clean up my cap table.

That’s why I wrote A Blueprint to cashing out of your tech business, an eBook that explains this little known way for companies that do not have cash in the bank to buy out their longtail investors.

Download Your blueprint to cashing out of your tech business here

Blueprint to cashing out of your tech business

 

Here are five reasons why you should read this eBook.

 

  1. You’ll learn how you can unlock capital tied up in your business

Also, different scenarios in which tech companies like yours have obtained private debt to give them liquidity without having to give up control.

 

  1. Key features of private debt transactions

You’ll learn what private debt is and how it came about, also, what makes it attractive to tech companies. And most interestingly, the advantages of raising private debt over bank debt.

 

  1. How to get advice about partially cashing out of your business

You’ll learn about the differences between specialist advisors and their areas of expertise.

 

  1. What to consider in regards to funding

You’ll learn how to develop a good story so that you can convince your potential lender that the rewards of recapitalising your business with private debt outweigh the risks.

Your blueprint for cashing out of your tech business

Introducing our free eBook: Your blueprint for cashing-out of your tech business

What if you could extract money from your tech business and reallocate it to other projects?

Think about it for a moment. Since founding your tech business, you’ve built up significant equity value. You’re not publicly listed, but would like to ‘take some chips off the table.’

OK, I know what you’re thinking. You worry about the effect cashing-out of your business will have on your company

Because, as a limited company, your assets belong to your business as opposed to you, the founder.

What’s more, you’re afraid that releasing equity will mean giving up control.

So what’s the solution?

To create liquidity for new and existing stakeholders, without giving up control, you can take advantage of low-interest rates and raise private debt. 

Our new eBook ‘Your blueprint for cashing-out of your tech business explains exactly how this works.

Download our new eBook, Your blueprint for cashing-out of your tech business.

 

What’s the catch?

 

As long as your company is not overleveraged, is cash-flow positive, and you can pay back the loan. Debt finance is an ideal instrument for recapitalising a business to create liquidity.

 

Download our Blueprint for cashing-out of your tech business‘ eBook to get answers to such questions as:

 

  1. How can I unlock some of the capital in my company to reward myself for the hard work I’ve put into it?

Learn how a partial cash-out can help you to fund large purchases, de-risk and re-balance your portfolio.

 

  1. How can I buy out a departing shareholder?

Have a shareholder departing due to retirement, moving on to another venture or moving on due to an acquisition? Learn how a debt leveraged share buyback allows a shareholder to cash out and exit the business.

 

  1. How can I reduce time-consuming admin?

Make doing business easier. Learn how you can use private debt to fund a partial cash-out of your business to buy out your longtail investors and tidy up your cap table.

 

  1. How can I take charge of my company’s financial destiny?

You’ve grown your business, and it is cash sufficient. You’re not planning on going public, exiting via a trade sale or indeed raising more money. Learn how a debt leveraged partial cash-out can help you to buy out your VC.

 

  1. I’d like to get employee commitment to help my business to grow/handle successions changes. How can I fund an EOT?

Learn how a debt leveraged partial cash-out releases capital that you can use to help fund an Employee Ownership Trust.

 

  1. How can I raise money to fund an MBO?

Do you need to raise money to acquire a majority stake from founders and other shareholders? Learn how private debt finance gives you access to significant loan amounts, without diluting equity.

 

To sum up

If you’re a CEO of a tech business that’s not publicly listed, at some point you will find yourself in a position where you need to take money out of your business.

For this reason, download our Blueprint to cashing out of your tech business and file it in your eBook library.

And if you need more guidance about your options for cashing out of your tech business, get in touch.

3 ways debt can be used to finance a share buyback

Did you know that in the event of a shareholder wanting to leave a tech company due to retirement, moving onto another venture or indeed an acquisition, you can borrow money to buy back shares?

OK, I know what you’re thinking, when you take on debt, at some point, you must repay or refinance the loan.

Here’s the thing. As long as your company isn’t overleveraged, has substantial recurring revenues and can service the loan without compromising plans for growth, you can use specialist debt products to fund a share buyback.

But that’s not all. Here are three other reasons why using venture debt to repurchase shares makes sense:

First off, when you use debt to finance a share buyback, you decrease your reliance on equity, and therefore reduce dilution.

Then there’s the fact that when you use debt to finance a share buyback you benefit because interest payments on debt are tax deductible. Which, in turn, reduces your cost of capital.

Beyond that, when you use debt to finance a share buyback, investors often see it as a positive move as it typically increases value for shareholders.

So what types of private debt loans are suitable for share buybacks?

 

3 ways debt capital can be used to finance a share buyback

Using debt to finance a share purchase

When a shareholder is no longer involved in your company, you can use specialist debt finance to fund a share purchase to allow the shareholder to cash out and exit the business.

 

Using debt to finance an MBO

If owners wish to retire from a privately run business, then the management team can consider a management buy out (MBO).

Seeing that a management buyout ensures business continuity, you’ll find lenders and investors warm to your proposal.

To finance an MBO typically requires a combination of debt and equity.

In particular, private debt term loans and IP financing can be structured to satisfy this type of transaction.

 

Using debt finance to buy out a VC or a PE

When your company has achieved its growth targets, and you want to regain control, debt finance can help you to buy out your investors.

 

What do tech companies need to consider when borrowing to finance a share buyback?

As a tech company, to leverage debt to finance a share buyback, you need to look to the alternative finance sector.

You see, without tangible assets to use as security, traditional bank lenders see you as a risk.

Whereas alternative finance lenders, in particular, private debt funds that write venture debt deals will use IP and patents as security.

But that’s not all, private debt funds are more interested in your growth potential, and ability to attract and retain investors.

 

Where can a tech company find a private debt fund willing to finance a share buyback?

To save time and money searching the market, talk to a specialist debt advisor who can structure the right deal, evaluate the right debt funding proposals and help you to pick the right option.

And that’s what really matters.

 

And finally

If you’re considering borrowing to finance a share buyback, then drop me a line, and we’ll set up a time to chat.

Funding Business Acquisition

If you’re looking to acquire a company and don’t have the funds to buy it, financing a business acquisition using debt is one of the popular choices for most CEO’s.

Just as a mortgage is secured against the purchase of a house, acquisition debt is secured against the assets of the business, however, in this case, the acquired business’ revenue can be used to pay back the debt, costs and amortisation.

You can choose whether to use only debt loans or blending debt with equity, it really boils down to what is most appropriate for buying the existing business and supporting growth.

Leveraged buyout

This loan is a blend of equity and debt finance used to buy an existing business and is structured to force unproductive companies to improve, with the principal idea being to compel companies to yield steady free cash flow and prevent wasting cash on unprofitable projects. Companies that fall into LBO are usually mature, have a strong asset base and generate consistent and strong cash flows.

 

Management Buy Out / Buy in – MBO / MBI

MBO finance is used when the buying company acquires a significant stake in a company from private owners and buys them out, or in a buy-in, a team from outside takes control of the company. Management acquisitions are appealing because of the fact that the acquiring team normally has thorough knowledge and experience of the business they want to acquire.

 

Summary

There are many ways to raise finance to buy a business, but what is important to note is how the alignment of the goals and nature of the business deal steers you towards different types of debt lending. Acquisition finance structure needs to be flexible enough to match the different contexts.

Acquisition debt financing is inexpensive compared to equity and is suitable for companies that are mature, have steady cash flow and do not need large capital expenditure.

Talk to us if you are entering into an acquisition and we can advise you which loan will suit the nature of the deal you’re entering.

How a private debt leveraged share buyback works: A simple guide

Are you a company considering borrowing money to fund a share buyback?

If you don’t have cash available but do have distributable reserves, then you can use private debt to repurchase your shares. This transaction is known as a leveraged buyback.

We asked corporate lawyer Jas Bhogal of Harper James Solicitors to explain what you need to consider when leveraging private debt to buy back shares.

Learn how private debt can support you in a leveraged buyback. And why you should talk to your accountant and tax advisor about the process.

Also, what your future shareholding means.

Let’s get started.

How a private debt leveraged share buyback works: A simple guide

How does a typical share buyback work?

Similar to dividends, one of the reasons companies instigate share buybacks is to return capital to shareholders.

To do this, they repurchase their own shares.

 

What are the advantages of a private debt fund leveraged share buyback?

First off, it is common for private debt funds to provide more capital

than is needed to buy back shares. The reason? Debt funds like to see you use the additional funds to fuel growth.

Beyond that, you can reduce equity dilution for ongoing shareholders.

Elsewhere, shareholders can gain tax advantages from share buybacks. Because dividends are taxed as income whereas share sales in a buyback programme are taxed as lower rate capital gains.

“Tax advice should be sought on this point,” says Jas Bhogal. “In particular, consideration should be given to any shareholders claiming the benefit of SEIS/EIS relief.”

Jas added: “Also, I recommend getting further comfort to ensure that your buyback of shares does not have an impact on any tax relief being claimed by any existing shareholders.”

How do tech companies typically use private debt leveraged share buybacks?

Equity release: If you have a shareholder no longer involved in your company, a share buyback allows the shareholder to cash out and exit the business.

MBO: When you put together a capital structure, a private debt leveraged buyback not only enables you to increase your shareholding, but also provides you with funds to execute your business plan, manage any issues that arise along the way and grow the business.

Redistribute shares to the management team: This strategy is typically used as a performance incentive.

Buy out a VC or a PE: And regain control of your company.

 

What legal considerations surrounding private debt leveraged share buybacks do I need to be aware of?

“Legal advice should be sought if you are considering a buyback of shares,” says Jas. “It is important to ensure that you are fully compliant with the relevant statutory provisions and any contractual obligations set out in your company’s documents.”

Jas added: “Any company proposing to buy back any of its shares needs to consider some factors including the following:

  1. i) Articles of Association: A company’s articles of association must not obtain a restriction on the buyback of shares; otherwise, the articles of association will have to be amended to remove the restriction;
  2. ii) Shareholder consent: The company will require its shareholders’ to approve a buyback of shares by passing an ordinary resolution – being the consent of the holders of more than 50% of its issued share capital;

 

iii) Price of shares to be purchased: There are no minimum or maximum price limits in respect of the price payable for the shares, but the directors of the company should be aware that they are required to comply with their common law and statutory duties;

  1. iv) Companies must comply with the statutory provisions relating to a buyback of shares as set out in the Companies Act 2006, which includes detailed processes to be followed concerning how the buyback may be structured
  2. v) Tax advice should be sought to ensure that the buyback of shares does not have any tax consequences to the existing shareholders concerning any tax reliefs they are claiming.

What your private debt leveraged share buyback means

“Future shareholding will be a reduction in the issued share capital meaning each shareholder has a higher % equity stake in the company,” says Jas. “Your company will, however, have a debt to repay in respect of the loan.”

 

So it all adds up to this

Whether you are seeking a share buyback to facilitate a shareholder exit, an MBO, a redistribution of shares or simply to regain control from a PE or a VC, private debt can support you in the buyback process.

To structure a private debt fund leveraged deal, talk to a venture debt broker.

And at the same time talk to an accountant and a tax advisor about the process.

Soon you’ll have it figured.

 

About Jas Bhogal: Jas is a corporate solicitor. She advises primarily on investment matters, working almost exclusively with high growth potential SMEs, along with venture capitalists and other investment platforms. Jas also advises on corporate governance and general day-to-day corporate/commercial matters.

Why tech companies need to plan exit routes early

You’ve heard the story about the early bird that catches the worm?

Well, it’s never too early to start planning your exit from your tech business.

You sweated blood to get your start-up and high growth tech business off the ground.

So if you want to get a maximum return from the hard work, time and money you put into it, then it pays dividends to start with an exit goal in mind.

I’m not saying you need to hard code your exit plan.

But you’ll gain strategic advantages if you have an exit plan you can review and update as your company, the market in which you operate, and indeed the economy evolves.

Let me explain how this works:

Why tech companies need to plan exit routes early

Helps you to operate with a clear vision

Do you want to sell your tech business to a public company? Go public? Use it to produce cash to fund your next venture? Or even to create a legacy for your children’s future?

Having an end goal helps you to set the course of the direction you want to take your business.

 

Puts you in a favourable light with investors

Businesses that can demonstrate a long term strategy, including contingency plans, show how they’re a risk worth taking to investors, and thus their value increases.

 

Makes it easier to raise money

Lenders and investors want to know how they’re going to get their money back.

Demonstrate you have a long term vision, run a tight ship and keep track of important metrics, and you’ll reduce perceived risk.

More importantly, give investors the comfort that you’ll deploy their capital effectively and you can expect to secure the best finance deal.  

But that’s not all. Early bird exit strategies have practical advantages.

 

Time to explore your options

Implementing exit strategies always take longer than expected. Along the way, you do not want to run out of cash or be forced into a weak negotiating position.

So start planning your exit early, so that you can ensure your preferred choice is viable.

More importantly, you can explore alternative financing options such as debt funding; you can use independently or collaboratively to effect the transaction.

Your options include:

 

  1. Selling a majority share but keeping an interest in the company beyond your term as the CEO

Banks don’t like funding share buybacks. More often than not they don’t see it as a legitimate use of funding.

Here’s the thing. Banks are no longer the only option for companies seeking capital for share buybacks. Today you can obtain the funds you need from non-traditional sources of debt finance.

But wait, there’s more. Know that non-traditional debt funders often add value to share buyback deals with useful growth funding.

 

  1. Acquisition by a private equity firm

If you choose to sell your business to a PE firm for a majority stake, you can use its capital and resources to operate and scale your business over a set period. Early exit planning provides time to find a PE firm with a specialism in your sector.

 

  1. Mergers and acquisitions

You can sell your company to a bigger one for a profit and receive cash or stock as compensation. The benefits: Original investors get paid. Also, key employees stay during the transition period, then have the opportunity to cash out.

 

  1.    Management buyout (MBO)

You can use bank debt to fund MBOs. Assets typically secure loans.

Here lies a problem for tech businesses who do not have traditional tangible assets. Early exit planning gives you time to explore alternative forms of MBO debt funding, such as structured loans as opposed to asset-backed.

 

  1. Initial Public Offering (IPO)

If you’re an established tech company, you may come to the point when further funding from PE or VC is no longer an option. In this instance, you can choose to take your company public via an IPO.

Of course, IPOs are costly. Early exit planning gives you the time you need to explore your options. In particular, time to seek out and speak to specialist debt funds about alternative forms of IPO planning.

 

Time to prepare financials

Exits make money for stakeholders. Interested parties will want to see figures on every aspect of your business, and anything else that affects the financial health of the company.

 

Time to finance your exit

Early exit planning gives you the time you need to explore alternative options to fund your runway to exit without excessively diluting your ownership.

For example, if you’re cash poor, as many high growth tech companies are, did you know you can use debt to fund your exit?

Debt funders lend to tech companies with a proven business model and who have reached the point in their development at which they are scalable. They see value in commercial models and intangible assets that banks often miss.

Options available to you include interest only term loans, unsecured lending, specialist IP secured loans and other innovative growth finance.

 

Time to get a proper valuation

It takes time to determine a company’s worth, including assets, debts, intellectual property, and equipment. A specialist broker can help you with this task.

 

To sum up

The early bird catches the worm.

It may seem odd thinking about exit when you’re growing your business. But early exit planning provides strategic, practical and monetary advantages.

To get your exit plan off to a good start, get good advice from a financial expert.

Trust me; it will be worth it.