Turning a tight squeeze into a success story
A Pharmacy client with six pharmacies had historically enjoyed a strong relationship with their wholesaler and two banks that had funded their business growth. The client also had good equity in the businesses which he had built up over 5 years. More recently, however, cash flow became more constrained as a result of his wholesaler reducing their trading terms. This had a flow-on effect, impacting core banking facilities, and started to place pressure on the business. Additionally, to make matters more challenging, the client was managing a large commitment on equipment finance across all pharmacies that was funded through a non-bank funder, with onerous amortisation requirements that severely impacted free cash flow.
The client approached Red Connect to help resolve the situation (as no one bank was able to assist) and provide a positive outcome for the business as well as key stakeholders and suppliers.
Red Connect achieved an outcome where all current bank debt was refinanced and, in this process, utilise a structured finance solution that enabled us to provide an extended LVR against the businesses. This facilitated enough funds to pay back the supplier, reduce trading terms to a position that was satisfactory to all parties and all current core bank debt was now on more favourable terms and structures. We were also able to secure a position for the client whereby property that had been previously held as security has been released back to the client.
Also, by reducing the trade debt position of the businesses we enabled the client to leverage a better buying arrangement through the wholesaler which had a positive impact on GP and the overall value of the businesses.
Refinance and Restructure
A child care operator with four centres (leasehold) approached Red Connect to assist him in his plans. He had one financier who, despite being in a strong security position, was reluctant to assist the client in his plans for expansion. It appeared that a lack of understanding about the industry was one of the main drivers for this as well as the fact that the businesses were leasehold rather than freehold businesses.
After spending time with the client we were able to determine that not only was there a strong cash flow being generated by these businesses but that his overall structure was such that there was latent equity in the businesses that, if unlocked and used in the right way, could assist greatly in his plans for business expansion.
Red Connect have now implemented a financial structure that has;
◾Refinanced all current bank debt
◾Facilitated the release of equity to acquire additional childcare centre’s
◾Assisted in the funding of these centre’s via a financial structure that will continue to allow future growth
◾Provided a more cost effective funding solution
◾Taken away the hassle for him that he had in dealing with banks and talking to the wrong people
Through Red Connect, and our understanding not only of the childcare industry but the banking industry in areas of specialisation, we have been able to provide a solution to the client where, previously, he did not think there was one. A reflection of it is who and what we know that will get results.