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A Close Look at the Business Plan Helps Company Rise
A 100-year-old business had an ambitious new managing director and a bold expansion plan – everything it needed, except a bank to back its progress.
- Company turnover: £5 million
- Sector: Food manufacturing
- Parsons is a growing family-owned bakery based in the South West of England. Founded more than 100 years ago, it is currently owned by the fourth generation of the family. Parsons needed funding in order to grow, but did not want to relinquish too much equity.
- Other banks were sceptical of the company’s plans, which didn’t fit their risk profiles, but Santander were convinced by the company’s highly professional management team.
- Santander offered a £1.6 million term loan, delivered in quarterly chunks to help Parsons’ cashflow.
- Since receiving Santander growth funding, Parsons has initiated its plans to double its chain of stores by the end of 2015, creating 200 full and part-time jobs in the process.
- The Santander team will revisit Parsons to help assess the company’s progress, a commitment that Parsons believe is a valuable add-on.
Parsons Bakery is more than a century old and has been passed through the family for generations. Already a solid and profitable enterprise, current Managing Director Nick Parsons took the bold decision to grow the business substantially and plotted a course to double its size within three years.
Parsons operates from a 10,000 square-foot central bakery in Bristol and its 35-plus shops can be found throughout the South West and South Wales. Its growth plan involves opening a new bakery shop every month for three years, bringing the total number to 70 by the end of 2015. That means extending the business’ geographical reach and creating about 200 new full and part-time jobs.
The search for funding
A plan of this magnitude requires a substantial investment, but Nick’s options were limited by his desire to preserve the company as a family business and not surrender too much equity. It’s the sort of opportunity that might capture the interest of a wealthy business angel or a venture capital firm, but these would require a substantial chunk of equity in return for an investment. Although Parsons had attracted equity funding before, the Santander funding package was different. Parsons was able to retain most of the equity in the business, without having to give away too much in terms of ownership or value in order to grow.
Having taken over the running of Parsons Bakery from his parents, Nick had opened new shops far from the business’ spiritual home in Somerset. The chain now had a presence in five counties, as far as Oxfordshire and Berkshire. He felt this proved the business was not just a local phenomenon and that a programme of further expansion was justified. “We had grown the business in stages, taking small amounts of investment along the way,” says Nick. “But after adding a few more stores we realised that our current funding would not support an ambitious growth plan. So we set about approaching banks for a solution, initially with not much luck.”
A different approach
“We hit upon Santander and they had a totally different approach. They were smarter than the others and understood the scope of where the business was going," says Nick. "They had done similar roll-outs in the food and drink industry, so they understood how we would create value and how we could pay down a loan over time.”
Before funding was confirmed, Santander meticulously studied the modelling of Parsons’ growth strategy, including the rate of openings, the likely stress on the business, the need to keep existing shops busy and the ongoing cash requirements.
The Santander view
“Parsons is a great business that had approached other banks and been told they were crazy,” says Simon Whyatt, Relationship Director for Santander Corporate & Commercial Banking. “When we met their management team, we saw straight away that they were great custodians of the business and they had a sensible plan for growth. We spent two or three months on regular meetings to understand their objectives. They were very open and honest; they were level-headed and risk-averse despite the scope of the project. They also were clear on the moral responsibility to protect jobs by not overstretching the business.”
“The business plan was well thought-out and thorough, but we were also impressed with their attitude,” adds Simon. “They know they are experts in this industry, but they also know that professional advice from accountants, solicitors and banks is required for this type of project.”
Despite the level of preparation involved, the deal only took two months to complete. The banking relationship with Santander also meant that Parsons could negotiate a better deal with a private equity investor, thus giving away less of the business’ prized equity for an extra cash injection.
Next for the business
Since the agreement was signed, Parsons and Relationship Director Simon Whyatt have been in regular contact. After three months – and three new stores – the team will reconvene and assess the success of the project so far. “It’s good for Santander’s peace of mind and it’s a sanity check for us,” says Nick. “It helps us to check our business and make sure everything is performing as expected. It’s a really helpful add-on to the raw funding that Santander supplied,” he adds.