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Profile Summer 2007 Newsletter

Sterling Corporate Finance: An Intermediaries View

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Graham Camm of Sterling Corporate Finance

Two partners established Sterling Corporate Finance seven years ago in Leeds. The partnership is a corporate finance practice that undertakes management buyouts, acquisitions, disposals, due diligence and specialises in management buy ins.

Three years ago the firm expanded to three partners and began to work in the turnaround and insolvency sectors, completing prepack insolvency transactions and buyouts from administration. Sterling have introduced a number of more traditional funding proposals to SYIF over the past couple of years but one recent investment was supporting a buyout from administration. Graham Camm, one of the partners, tells us more.

Since the Enterprise Act was passed in 2003 a rescue culture has been encouraged which has fuelled the boom in transactions for 'pre-packed' insolvency deals and buyouts from administration. Businesses fail for all sorts of reasons but often they can be restructured via an insolvency enabling a profitable business to emerge. Key to this market is very quick action on the part of the business, the advisers and the funders.

One example of this is where Sterling Corporate Finance assisted an acquisition of Doncaster Packaging Limited. Doncaster Packaging Limited (DPL) was part of the Corpack Industries Group that went into administration in November 2006. At this time the business turnover was £10m.

The Doncaster based packaging converter, primarily focused on manufacturing transit packaging. The company operated from two premises employing 102 people. Historically DPL had been highly profitable, but the loss of a significant and profitable customer, and the replacement of this turnover with less profitable work, led to a significant reduction in gross margin and resulted in trading losses. The Group reorganised the Management Team with Stacey Austin (Operations Director) and Janice McCafferty (Finance Director), being asked to take on the running of the business.

The pair implemented a turn-around strategy. They cut the night shift, improved efficiency and this allowed the business to make a small profit in October 2006. Despite this, the Group was forced into administration due to underperformance in other areas of the business and Stacey and Janice launched a bid to buy the business of Doncaster Packaging and implement their long term strategy.

Sterling Corporate Finance assisted Stacey and Janice to buy the trade and assets of Doncaster Packaging Limited and to relaunch as Donbox Limited. Sterling also helped in the production of a business plan and forecasts, the raising of finance and negotiation of the transaction with the administrator.

Funding to buy the business was raised from Five Arrows Commercial Finance who also provided working capital finance but further finance was also needed to implement the restructure and provide headroom. SYIF responded very quickly to the call for assistance. They met management within a day of the first contact from Sterling and had a decision to provide a loan within 48 hours of having the business plan and forecasts. The SYIF investment helped to save over 100 jobs at the two plants.

Karl Hodson, Investment Director with SYIF who led this transaction said:

"We were very pleased to support the Management Team with this buy out - its growth plans will help safeguard over a hundred jobs. Buy outs from administration are always high risk and difficult for us. However in this instance the administration arose from problems with a wider group of Companies and our facility will help to ensure the success and sustainability of the Company going forward. Importantly, the business had already shown evidence that the Management Team's turnaround strategy was proving successful before the administration."

Editor's Notes

About South Yorkshire Investment Fund

South Yorkshire Investment Fund  provided seedcorn, loan and equity linked investments, ranging from £15k to £2.5m, specifically to help small and medium businesses meet the gaps in funding they need for growth and development.

Created as part of the Objective 1 programme, the Fund is a private and public sector business finance provider. The European Regional Development Fund and Yorkshire Forward are investors in the Fund.

South Yorkshire Investment Fund also provided access to Business Angel investments from the Yorkshire Association of Business Angels and Microloans through BiG Business Loan Fund and Donbac Microloan Fund.

Finance Yorkshire has now taken on responsibility for providing gap finance in Yorkshire and the Humber.

For further details please contact Suzanne Tinkler,  on 0845 649 0000.

South Yorkshire Investment Fund Ltd is a company limited by guarantee (Registered No 3936065). South Yorkshire Investment Fund comprises three sub funds, the South Yorkshire Investment Capital Fund, the South Yorkshire Investment Development Fund, which are each managed by YFM Venture Finance Limited, and the South Yorkshire Investment Small Business Fund, which is managed by Finance South Yorkshire Ltd. YFM Venture Finance Limited (Tel 0113 294 5000) and Finance South Yorkshire Ltd (Tel 01709 386 377) are each authorised and regulated by the Financial Services Authority. South Yorkshire Investment Fund also provides a number of services, which are not regulated by The Financial Services Authority. These include the pilot Seedcorn Fund, BiG Business Loan Fund, Mentorbank and access to the Donbac Microloan Fund. BiG Business Loan Fund is managed by Donbac Ltd (company registration No. 01925556) and Key Fund Yorkshire Ltd (Tel 0114 242 8900).