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overseas deal activity on the up and up

6 January 2014

Browne Jacobson has seen an increasing appetite with funders and banks to fund transactions with overseas elements. Recent transactions that Browne Jacobson have been involved with, that have overseas aspects include: Joules (Hong Kong and China) and the Source BioScience plc takeover of Vindon Healthcare plc (Ireland and USA). And there have been some common themes about funding overseas expansion and trade in these deals.

For many business owners the prospect of international expansion can be daunting, not least in the current economic climate. However, research carried out by UK Trade & Investment (UKTI) (Bringing Home the Benefits) confirms that engaging in overseas business can lead directly to growth, improvements in efficiency levels and helps foster new ideas for products and services.

It is also difficult to ignore the commercial, financial and logistical challenges associated with the import and export business, for example difficulties in: arranging payment where customers are located overseas; dealing with different currencies and cultures; and differing legal systems and regulations. These issues could make getting paid promptly difficult to manage. However, there are a number of government and bank initiatives and products available to provide support and finance for businesses considering overseas expansion to alleviate some of these difficulties. They include:

1. Cross border invoice finance

Invoice finance is often a very useful way of raising finance when exporting and invoice financiers are nowadays well set up to fund invoices issued to overseas customers.

With invoice finance the invoice financier agrees to fund the trade debts of the business at the time of issue at an agreed funding rate. This can be a very effective way to raise capital to fund overseas expansion thus, easing the strain on the companys cash flow.

When exporting, invoice financiers often have partnerships with other funders in overseas countries responsible for collecting debts in that country. If the business has a small percentage of overseas debtors the funder may collect into an account in the UK. If though collections are made into an account in the customers jurisdiction this should strengthen the funders security by ensuring that the funder has a valid assignment over the invoices. This in turn should increase the size of the facility that the funder will be willing to make available to the business. For the same reason if a large percentage of a business trade is overseas, the funder will often insist that collections are made into an account in the customers jurisdiction.

2. Trade finance, letters of credit etc

Letters of credit are in effect bank guarantees for the payment of goods exported overseas or imported. Provided all the requisite conditions are met when exporting the products or services the foreign bank representing the buyer will pay up under a letter of credit. The letter of credit will contain details of the specific documents that have to be delivered by the exporter eg bill of lading and insurance certificate in order for the bank to release payment. For businesses, letters of credit reduce payment risk as the creditworthiness of the buyer is replaced with that of the bank. And to further ease the payment process actual payment is often made to the exporter by a correspondent bank (acting on behalf of the buyer) usually in the country of the exporter.

3. Integrated trade and invoice finance

Where businesses are importing using a trade finance facility and then raising finance using an invoice finance facility, funders now often provide facilities that combine the two so that the finance made available to fund imports is refinanced by the invoice finance facility and ultimately the collections paid by customers - all under one facility.

4. UK Trade & Investment (UKTI) and UK Export Finance (UKEF)

Many companies have benefited heavily from government support for overseas expansion.

The UKTI is a government department which works with UK businesses to help them grow internationally and increase exports. They can provide access to major buyers, governments and supply chains in overseas markets. In addition, they also offer export skills training aimed at businesses with little or no experience of exporting goods.

British exporters received £4.3bn from UKEF in 2012-13 (Department for Business Innovation & Skills). The UKEF is an export credit agency providing government support to ensure exporters can access the finance they need to do deals overseas. Their services include insuring against non-payment by their overseas buyers and guaranteeing bank loans to help overseas buyers purchase goods and services from UK exporters.

5. The Business Growth Fund (BGF)

The BGF with the financial backing of the UKs major banks is an initiative designed to help grow SMEs including through overseas trade and expansion. If a business has a turnover that falls within the £2.5m - £100m range and has strong growth potential, the BGF may be able to assist in putting in place the right capital structure to support business expansion.

6. Regional Growth Fund (RGF)

The RGF has been set up to help businesses create jobs and supports projects and programmes that are using private sector investment to create economic growth; for example by supporting capital purchases i.e. commercial premises (for owner occupation), plant & machinery and commercial vehicles - grants of up to 20 of the net purchase price can be made available where job creation or preservation can be demonstrated. This might be particularly relevant to businesses that need to buy plant and machinery to satisfy export demand.

So there is real evidence out there of much-needed funding support for businesses developing overseas. A very positive message as we head into 2014.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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