corporate
finance
handbook
the
Corporate Finance HDbk 3rd 28/04/2004 10:23 Page 1
sir edward george
governor, the bank of england
david irwin
chief executive, small business service
3rd
edition
corporate
finance
handbook
the
forewords by
jonathan reuvid
consultant editor
Corporate Finance HDbk 3rd 28/04/2004 10:22 Page 1
ROYAL SUN ALLIANCE
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TENON
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THE
CORPORATE
FINANCE
HANDBOOK
Third Edition
LEE CROWDER
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Typeset by Saxon Graphics Ltd, Derby
Printed and bound in Great Britain by Thanet Press Ltd, Margate
Contents
Forewords Sir Edward George xi
Governor, Bank of England
David Irwin xiii
Chief Executive, Small Business Service
About the Contributors xv
Introduction Jonathan Reuvid xxi
Part One: The Corporate Finance Environment 1
1.1 Strategic Considerations – Making the Right Choice 3
Shiju Varghese, Tenon Corporate Transactions
1.2 Financial Market and Business Conditions for SMEs 9
Jonathan Reuvid
1.3 Small Business Service (SBS) and SME Finance 17
Adrian Piper, SBS
1.4 Finance for Technology-based Small Companies (TBSFs) 25
Jonathan Reuvid
1.5 Modern Company Law for a Competitive Economy – Final Report
from the Company Law Review Steering Group 31
Keith Baxter, Royal & SunAlliance ProFin
Part Two: Debt Finance 37
2.1 Structured Finance 39
John Bagley, NMB-Heller
2.2 Asset-based Finance 45
Forward Trust
2.3 Finance for Foreign Trade 55
Jonathan Reuvid
2.4 Legal Issues for Failing Companies and Corporate Rescue 63
Carrick Lindsay, Lee Crowder

Stephen Craik, KPMG Corporate Finance
5.5 Legal Aspects of Management Buy-outs and Acquisitions 203
Richard Murrall, Lee Crowder
5.6 Tax Aspects of the Purchase and Sale of Private Companies 215
or their Businesses
Maurice Fitzpatrick and Jay Sanghrajka, Tenon Group
Part Six: Management Issues in Generating Investment 223
6.1 The Business Plan – Making it Fly 225
Shiju Varghese, Tenon Corporate Transactions
6.2 Building the Management Team 235
Charles Russam, Russam GMS Limited
6.3 Enterprise Management Incentive (EMI) Schemes 245
Maurice Fitzpatrick and Jay Sanghrajka, Tenon Group
viii Contents
6.4 HR Issues Arising from Acquisitions 251
Judy Brown
6.5 Effective Environmental Due Diligence 269
William Butterworth, RPS Group Plc
Part Seven: Directory of Corporate Finance Service Providers 273
7.1 Financial Advisers 275
7.2 Legal Advisers 285
7.3 Private Equity Sources 307
7.4 Stockbrokers and Money-makers 317
Contributors’ Contact Details 325
Index of Advertisers 327
Contents ix
RPS
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Foreword
I am very happy once again to contribute this Foreword to The

United Kingdom the best place in the world in which to set up and
run a business. The revamped Business Link network in England is
now complete, providing a simple route to information and advice for
small businesses through a single access point. The other elements of
the gateway are also now in place – including a call centre, website
and knowledge base. In developing these, the SBS has called upon
expert knowledge contained in publications such as The Corporate
Finance Handbook.
For this edition, the SBS has provided details of the initiatives it is
taking forward in the area of SME finance. Alongside its well-established
national programmes, such as the Small Firms Loan Guarantee Scheme
and the Smart scheme, the SBS has created a UK High Technology
Fund and Regional Venture Capital Funds – the latter should start
making investments in growth businesses in the regions later in the
year. The SBS is also taking forward measures aimed at helping small
businesses to better understand the financing options available and to
be better prepared to take on an investment. Further details of these
initiatives are provided in Chapter 1.3.
David Irwin
Chief Executive, Small Business Service
About the Contributors
Bertoli Mitchell
Established in 1994, Bertoli Mitchell is an M&A boutique specialising
in the publishing sector.
Christopher Gasson is a corporate financier and financial journalist,
and an associate at Bertoli Mitchell. He is author of Media Equities:
Evaluation and Trading, published by Woodhead Publishing.
Judy Brown
Judy Brown has advised corporate financiers and boards of directors
on HR issues in corporate acquisitions and management buy-outs for

Corporate Finance.
Tony Sharp is a partner with KPMG Corporate Finance based in Leeds.
Mike Stevens is vice-chairman and UK head of mergers & acquisi-
tions at KMPG Corporate Finance.
Lee Crowder
Lee Crowder is one of the Midlands’ most dynamic and forward-
thinking legal practices. It represents a wide range of organisations
and individuals throughout the UK and overseas and has provided a
first class legal service for nearly 250 years. Its service is client focused
and it appreciates the need to understand its clients’ businesses,
enabling it to provide commercially aware, quality legal advice.
Lloyds TSB Development Capital (LDC)
Lloyds TSB Development Capital (LDC) is the Venture Capital arm of
Lloyds TSB Group plc. It invests between £0.5m and £10m in
unquoted companies with a turnover typically in excess of £5m.
It makes investments in a full range of equity products including
ordinary shares, preference shares, convertible preference shares and
loan stock. It invests money from the bank’s balance sheet, so it does
not suffer the same pressure as some other venture capital funds to
seek a rapid return of its money.
LDC has invested in over 350 businesses in its 20-year history across a
wide variety of industry sectors, of which IT forms a large proportion of
its portfolio. It invested £115 million in 2001.
LDC is now ranked as one of the top two mid-market private equity
houses in the UK.
xvi About the Contributors
About the Contributors xvii
Michael Joseph is managing director of Lloyds TSB Development
Capital.
NMB-Heller Limited

Adrian Piper is head of the Investment Directorate of the Small Business
Service. He joined it on secondment from the Bank of England where as
Acting Head of the Domestic Finance Division, he had responsibility for
producing the bank’s reports on finance for small firms.
Jonathan Reuvid
Jonathan Reuvid is consultant editor and part-author of a series of inter-
national business books and of titles relating to the finance and business
management of UK small and medium sized enterprises, all published
by Kogan Page.
Royal & SunAlliance
Royal & SunAlliance has recently launched Management Assurance, a
packaged product providing specialist insurance protection with
bespoke cover to suit the needs of each and every business, whether
public or private. Directors & Officers Liability insurance can be taken
out individually, or combined with other up-to-the-minute covers
such as Employment Practices Liability insurance, Crime, Kidnap
Ransom & Extortion, Pension Scheme Liability insurance, Professional
Indemnity insurance and Libel insurance. The product includes
unique value-added services designed to help insureds avoid distract-
ing and time-consuming losses and ultimately support the insureds in
managing their future with confidence.
Keith Baxter is worldwide practice leader, Credit & Bonds, Royal &
SunAlliance ProFin.
RPS Group plc
RPS is the largest independent environmental consultancy in Europe,
providing commercial and practical advice to both business and the
public sector. With teams of environmental auditors based in London,
Frankfurt, Paris, Rotterdam, Edinburgh and Dublin, RPS has spe-
cialised in advising on cross-border transactions in Europe and the US.
Dr David Hockin is responsible for the development and co-ordination

finance based in Tenon’s City of London offices. He has over 10 years’
experience in strategic management and corporate finance work asso-
ciated with the implementation of strategies, including structuring
and launching business development and expansion initiatives. He
can be reached by e-mail at or by
telephone on 020 7448 8120.
Nick Jones is a director of corporate finance based in Tenon’s City of
London offices. Nick has a wide range of corporate finance experience
including advice on management buy-outs, raising equity finance
from private providers, sales and acquisition of businesses. He can be
reached by e-mail at or by telephone on
020 7448 8117.
Maurice Fitzpatrick FCA ATII is a taxation director and head of eco-
nomics at Tenon. If the former role, he is particularly interested in
inheritance tax, capital gains tax, employee share schemes, and the tax
About the Contributors xix
xx About the Contributors
efficient structuring of corporate deals. In the latter role he is fre-
quently quoted in the media on a wide variety of fiscal and economic
issues. He can be reached by e-mail at Maurice.Fitzpatrick@tenon-
group.com or by telephone on 020 7448 8125.
Jay Sanghrajka is head of taxation services for the London region of
Tenon and has wide experience of the taxation aspects of corporate
finance including restructuring groups, MBOs, sale of business, ES
financing and advising on sale and purchase documentation. He can
be reached by e-mail at or by tele-
phone on 020 7448 8104.
TMG Corporate Finance
David Houghton is a director at TMG Corporate Finance, based in
Manchester. TMG specialises in the owner-managed business sector,

The role of formal and informal venture capitalists is addressed, as are
the preparations for attracting private equity and the legal aspects of
equity transactions.
Part Four will be of interest chiefly to those readers whose companies
have reached the level of trading at which flotation on a public stock
market has become a realistic option. The motivation for ‘going public’
is discussed objectively against the alternative of a trade sale as a means
of releasing shareholders’ capital. The key legal and taxation issues that
arise in the course of preparing for an Independent Public Offering
(IPO) are identified and their implications for directors are examined.
Finally, the phenomenon of public to private transactions is discussed.
In Part Five the processes of buying businesses and selling your
business are highlighted including the key issue of valuation. The real-
ities of management buy-outs are questioned in Chapter 5.4. Taxation
aspects of purchasing and selling private companies and their busi-
nesses and legal due diligence issues are further discussed.
Finally, Part Six offers guidance on some of the key management
issues that emerge in most growing businesses and are brought to the
fore at the time of negotiating external funding, particularly of an equity
nature, in connection with flotation or merger and acquisition (M&A).
Of particular interest to directors will be Chapter 6.3 which describes
the new opportunities for rewarding management with a stake in the
business through the Enterprise Management Incentive (EMI) schemes,
which recent government taxation changes have generated.
The principal sponsors and authors of The Corporate Finance Handbook
are three leading firms of professional advisers who are engaged in pro-
viding services to corporate clients at all stages in the development of
their external financing. KPMG Corporate Finance has contributed
chapters on key topics in each of the private equity, public equity and
M&A sections of the book. The Tenon Group has provided guidance on

and managing certain activities of companies, including the raising of
funds and the realisation of value through a sale or listing. These include
raising funds for the purpose of financing existing activities, developing
new activities or investing in new fixed assets, buying other companies or
businesses and selling the whole or part of companies, or even selling
certain specific assets. At its most basic level it could be arranging a simple
loan for the purchase of a piece of machinery, or agreeing an overdraft
facility to meet cash needs during a seasonal slow down. Alternatively,
it could be a hugely complex deal involving the issue of complex
instruments to financial institutions and the public.
There are numerous methods by which any of the above activities
can be financed and structured by any of the parties to a transaction,
but ultimately whatever means is adopted will be classified as either
debt or equity. Debt will eventually have to be repaid and will almost
certainly have to be serviced until then, whereas equity is effectively