Debt advisory in the UK: what it is and why it matters
Debt advisory is specialist advice on how a business should borrow for a transaction or refinancing, followed by the running of the process that gets that debt agreed and drawn. A debt adviser sits on the borrower's side of the table. The job is to work out how much debt the business can sensibly carry, which structure fits the deal, which lenders will compete hardest for it and how to turn a term sheet into documents the management team can live with for the next five years.
For UK SMEs and mid-market companies, the choice has often been between a large corporate finance house that only looks at bigger deals and a broker that sends a summary to two or three banks. GBF works between the two. We run a full, structured lender process for transactions from £200k to £350m, across a panel of 650+ lenders, with the discipline a sponsor-backed buyout would expect.
What a good debt adviser actually does
- Sets debt capacity from the cash flow, the assets and the deal, before any lender sees the business
- Prepares the information memorandum and tests the financial model the lenders will rely on
- Chooses which lenders to approach and in what order, so the deal is never shopped around the market
- Compares term sheets on total cost, covenants, security and flexibility, not headline margin alone
- Negotiates the facility agreement alongside your lawyers and holds the timetable to completion
MBO finance: how a management buyout is funded
In a management buyout the existing management team buys the business from its owners, usually with a modest equity investment of their own and most of the price funded by debt and deferred consideration. The cash flow of the business repays the borrowing, so the structure has to be built around what the company can genuinely service, with room for a weaker year.
A typical MBO funding stack has four layers. Senior debt, as a term loan, an asset based facility or both, provides the core of the funding and ranks first. Stretch senior or unitranche debt can extend leverage where the cash flow supports it. A vendor loan note defers part of the price and ranks behind the lenders. Management equity, sometimes alongside the vendor rolling part of their stake, sits at the bottom and takes the upside.
How much can you borrow for an MBO?
Cash-flow lenders will go up to 4x EBITDA on senior debt for the strongest businesses, and up to 5x on acquisitions with a stretch senior or unitranche structure. Asset based lending, from £2m to £120m, adds capacity where the balance sheet carries receivables, stock, plant or property, which is why many of the best-structured buyouts combine a term loan with an ABL facility. The right answer is rarely the maximum: it is the level that leaves real covenant headroom.
MBIs and buy-in management buyouts
In a management buy-in an external team acquires the business. Lenders look harder, because the team has not yet run this company, so a strong sector track record, a credible first 100 days and a proper handover period from the seller matter more. A buy-in management buyout, or BIMBO, combines incoming and existing managers and often finances more easily than a pure MBI.
Acquisition finance broker or debt adviser?
An acquisition finance broker introduces a deal to lenders. A debt adviser owns the outcome: the structure, the lender process, the negotiation and the completion. We run every acquisition as an advisory mandate, with one structure agreed with you up front, one information pack, a targeted lender process on a clear timetable and a written comparison of every offer.
Buy-and-build strategies need more again. The first acquisition facility should already allow for the second and third, with an accordion or incremental facility, sensible permitted acquisition tests and covenants measured on a pro forma basis. Getting that right on day one saves a refinancing every time the group grows.
Refinancing, recapitalisations and growth capital
Not every mandate is an acquisition. Businesses come to us when a facility is approaching maturity, when the current lender's appetite has changed, when shareholders want to take value out through a dividend recapitalisation, or when growth needs more capital than an overdraft can give. Debt is usually the cheapest capital a business can raise, and growth capital through debt avoids selling equity at a valuation the owners do not yet believe in.
Refinancing is also where the most value is lost by doing nothing. Facilities signed three or four years ago were often priced and covenanted for a different business. A competitive refinancing, or an amend-and-extend with the incumbent backed by a credible alternative, regularly delivers lower margins, looser covenants and more headroom.
Stressed refinancing and turnaround
Where trading has dipped or a covenant is under pressure, timing is everything. We work with the board and its advisers to stabilise the lender relationship, negotiate a waiver or reset where that is the right answer, and find replacement funding from lenders who back recoveries before the options narrow.
What lenders look for in a transaction
Every credit committee asks the same questions in a different order. Our job is to answer them in the information memorandum before they are asked, and to choose lenders whose appetite fits the answers.
- Quality of earnings: how much of EBITDA is recurring, and how adjustments and one-off costs have been treated
- Cash conversion: how reliably profit turns into cash once capex, tax and working capital are paid for
- Management: depth beyond the founder, and a plan the lenders can test
- Security and assets: what the debt is backed by if the plan falls short
- Headroom: how far trading could fall before a covenant is breached
How we are paid
There is no upfront fee to assess a transaction. If we take the mandate, our fee is agreed in writing before work starts and is payable on completion, so our interest is the same as yours: a deal that completes on the right terms. We tell you at the start how we are paid, including any commission from lenders, and we never let it decide which lender you choose.