Amid gloomy news on the economy it’s nice to be able to pass on a positive business story. Particularly as this one comes from a sector that has had a bit of a battering of late – leisure. And especially as it features some of the better things in life: all day breakfasts, cakes galore and fine ales. And extra especially as it is about a Bristol based success story: Lounges
If you’re not familiar with The Lounges (and if not, I highly recommend you familiarise yourself with them), they are chain of cafe-bars that were founded in 2002 in Bedminster and have since gone on to have five lounges across Bristol and 20 throughout the south of England and the Midlands.
The team running the business plan to open approximately 50 more lounges over the next three to five years. To help make this happen they have sold a significant minority stake to Piper Private Equity for £16m. Piper have form in the leisure sector being the founders of the Pitcher & Piano chain and investors in another Bristol based restaurant business, Las Iguanas.
I am not privy to the deal and therefore won’t speculate on the details, but thought that I would write about it as it is a local good news story and shows that despite the problems that many SMEs have securing funding right now, that there is money out there.
Both in my day job advising SMEs on their exit and acquisition strategies and my role for the Institute of Directors (IoD), I come across many of the same issues and grumbles: banks are not willing to lend, the banks don’t understand my business, the bank won’t give me an overdraft but is pushing me towards invoice discounting etc.
In some cases these grumbles may be justified, but we have now got to the stage where business owners must recognise – and accept – that the funding landscape has changed. We’ve had a good few years of bashing bankers and while at the investment bank level (and the ridiculous bonuses that accompany it) I think that this is for the good and should continue, at the local business banking level I think it is time to face the reality. The attitude to risk has changed and in all likelihood will never return to the pre-2008 levels.
So while business owners should certainly continue to look at debt finance through the banks, it is also important to search out alternative sources of finance. There are too many sources to go into in this brief article but a few notables are Business Angels (for which I recommend you check out SWAIN), the rapidly emerging crowdfunding providers (see Exeter based Crowdcube) and the multitude of private equity players.
Piper (mentioned above) are an established firm but one of the interesting developments that I have seen over the last few years is that as the sources of traditional bank finance have dried up, small private equity firms have popped up. Often comprising one, two or three person teams, these organisations now play a significant role in providing sums in the £100,000 to £5m bracket. A good place to find out more is The British Venture Capital Association
I’ll come back to the key dos and don’ts of working with Private Equity firms in a subsequent article but suffice to say at this stage ensure that you pick the right partner, not just the one with the biggest cheque book. The single biggest factor in deals that went wrong is cited as cultural differences. Just look at Guy Hands’ disastrous attempt to regiment an artistic, creative organisation like EMI. It appears that the team from The Lounges have picked a partner who not only understands their market, but understands them, and what makes them special. Good luck to them all.
Tom McCarthy advises on Mergers & Acquisitions for www.avondale.co.uk and is Chairman of the Bristol Institute of Directors www.iod.com
