Private equity has traditionally been funded by a select number of banks and specialist providers, typically with fixed loans or revolver facilities to provide liquidity. While this type of funding can provide a quick cash injection, supporting a certain amount of business improvement and better cash flow, it still stays on the company’s balance sheet.
The right funding can provide an organisation with significant benefits. For example:
– improved cash flow
– early payments into the supply chain to take advantage of early payment discounts
– funds to make acquisitions or product investments
– support for management buy-outs
The right accounting treatment for this funding is critical and increasingly important.
Through a true sale of the company’s receivables, and in line with standard investment documentation for private equity companies, this funding can be removed from the balance sheet. This not only provides the required liquidity but actually improves the equity position in the company.
However, many private equity companies habitually shied away from this source of funding, seeing it as too complicated and time-consuming to put together. Although this may have been the case in the past, there are now new ways of overcoming the barriers.
HOW ARONOVA WORKS
Aronova’s solutions are specifically designed to simplify the process of obtaining funding from a number of sources. We have years of experience helping organisations evaluate, deliver, protect and grow their capability.
The first stage is to provide quick, simple sight of the portfolio. Through a simple Excel file of the standard data taken from the company’s accounting system and uploaded into our solution, we can provide near-instant analysis of the company’s receivables performance, both to our private equity partners and their potential funders.
During the initial upload, we validate all the data and identify patterns of behaviour, matching all the underlying debtors to the Dunn & Bradstreet DUNS numbers. Our strategic partnership with D&B means that we can do this in near real time, ensuring that the true legal entities are understood as well as their group structures and sectors.
Not only does this provide our private equity partners with valuable insight into the portfolio, it also enables them to get the right funding for their needs from the best suited provider.
Effective early-stage evaluation of the portfolio means that the chosen funder can then move quickly to structure the programme. Once the offer has been accepted, we work with the investment company to automate the same file of invoice data so that daily or periodic updates can be made to our system. This allows our partners to tweak the settings based on live data, optimising the structure for the client and ensuring that all counterparties are protected.
When the programme parameters have been agreed we configure them within our systems, pre-testing all company and invoice data to protect the programme. This ensures that every potential invoice that meets the requirements can be funded.
Setting the programme up correctly in the first place is the most significant step in protecting all counterparties. However, more is required to protect everyone for the life of the programme. Not only does our solution test all new data uploaded to ensure ongoing compliance to eligibility, but we also run proprietary algorithms that identify anomalies in the programme. Potentially fraudulent behaviour, or changes in the programme profile that could be a risk to the investors are instantly identified and trapped prior to funding. All the appropriate parties are alerted so that remedial action can be taken.
With traditional methods, the company being funded would need to undertake all of this reporting, which is onerous, time-consuming and highly risky. With our systems, the vast majority of the analysis is automated which means that time can be spent more usefully elsewhere.
This effective, systematic approach means you can effectively fund companies in which you are invested without unnecessary operational drag. Funders and insurers can see the operational rigour, ensuring their services are set at competitive rates. The companies which benefit from the funding get tailored, competitive programmes which efficiently support their plans for growth.
“Aronova make life so much easier for us, helping us to compete effectively and run and grow our portfolio with confidence.”