Raising Finance

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Why British manufacturing icon Riley Automation chose alternative finance to fund its MBO

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When you’re one of only three companies in your space, the growth of your business and customer experience really do matter. The competition is fierce and you don’t want to risk losing clients to rivals for failing to up your game. This would drive most companies to seek investment.

Riley Automation, which has been going strong for over 50 years, found itself going down that exact route. The Derby-based company designs and manufacturers linear vibratory and parts handling systems.

What it means is that most of its products help move items into various containers – sweets into packets and pringles into tubes – while progressing them down production lines.

The ask: Funding a management buy out

Indeed, Riley Automation is in quite a niche market. According to ThinCats credit analyst Saahil Dhanak, the manufacturing company is testament to what uber investor Warren Buffett calls investment moats.

“The industry has both a range of expertise and established contacts that make it difficult for prospective competitors to enter. The market as it stands is divided between Riley Automation and two competitors” – Saahil Dhanak

It has found great success, already having counted Boots and United Biscuits as customers. It’s no surprise then that the team thought the acquisition of a company would push Riley Automation further up the ranks.

Sales manager Mick Sturgess proclaimed the move would draw in new customers and drive further growth over the next five to 10 years.

That’s not the only reason behind the pursuit for finance. According to Sturgess: “We’re also working with people in the robotics industry who require presentation of components to the robot cell. With years of experience building parts handling systems, we can offer a solution to suit their application.”

But in order to complete a management buyout and balance such a rigorous schedule at the same time, the company has had to look beyond the banks for finance.

The challenge: Securing finance

Research from manufacturers’ organisation EEF maintained that the legacy of the financial crisis still plays a significant role in the manufacturing sector’s distrust of bank lending.

That banks have been unwilling to cough up finance for the industry, has been particularly felt amongst growing SMEs.

While crowdfunding, asset finance and overdrafts are sometimes on the cards for small and medium businesses, EEF explained that the industry had still retained its want of traditional finance procurement. So when banks decline to lend, most companies either delay investment or stop focussing on growth.

As Dhanak made clear though, Riley Automation is incredibly specialised. Neither option appealed. So the team behind Riley Automation turned to alternative finance provider ThinCats for help.

The solution: A £1m loan

When it came to dealing with ThinCats, “it all went to plan,” explained Mick Sturgess.

“We got the funding we needed, when we needed it. It’s a good option for companies trying to raise cash” – Mick Sturgess

ThinCats provided the business a £1m loan to fund its MBO. “When we visited their factory, we were also very impressed with the quality of the machines and the variety of end users that they supplied,” Dhanak explained.

“There was also a reasonable level of deferred consideration and the borrowers were willing to provide a good level of personal cash and guarantees relative to what they could afford.”

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