ESTHER Marlow, finance director of Carmel Clothing, and Gary Edwards, Growth & Acquisition Finance at Investec, discuss why a fast-growth business needs the right funding partner to support its expansion.
How did Carmel and Investec come to work together?
EM: Carmel Clothing is a UK-based manufacturer that supplies clothes to supermarkets and high street retailers. The company has gone through 20 per cent year-on-year growth in the last seven or eight years, so it’s been quite a phenomenal journey.
But we reached a point about three years ago where our growth was restricted because of our funding partners at the time, a high street bank. We had a relationship with Investec through currency purchasing. That’s how the Investec/Carmel partnership came about. For us, it wasn’t just about money. It was about finding the right kind of partner and getting the right input to help us achieve our potential.
GE: We always want to understand who we’re backing. Why is this business compelling? How will it outperform its rivals? And we saw in Carmel a company with an absolute expertise in its market. That wasn’t just in terms of understanding how to put fashion onto the high street, but about being world class in logistics. One of the things I love about the firm is that the directors are equal shareholders – they take equal amounts out of the business and have a strong sense of partnership with each other.
Why did your previous funder restrict your growth?
EM: It was traditional high street funding against a backdrop of a difficult retail environment. That made the bank risk adverse, but it translated into it being growth-adverse too. When we met them, we were almost underplaying our growth because it was met with trepidation rather than enthusiasm. In addition, demand often outstripped funding capacity so we had to close the order book and turn away sales. I’ve seen a downgrading in staff in banks quite dramatically and that impacts on the service you receive. By contrast, we’ve seen in Investec a similar drive for excellence to that we aspire to ourselves.
How does Investec’s approach differ?
GE: Because we make our finance decisions based on whether the business is compelling, we don’t restrict how we put together our funding structures based on last year’s accounts. We look at how it could do over the next three years, which is much more suitable for a growth business. We invested a lot of time understanding Carmel’s relevance to its clients, how it sources its textiles, how it manages its production runs and seasonal funding requirements.
EM: We had an open conversation about the creativeness of the funding Investec can provide. It’s a combination of how they fund, what they can fund, and the level of service. When you’re dealing with someone who understands your business, it leads to a partnership. And the flexibility of finance is vital. We projected 10 per cent growth this year but we’re going to have 30 per cent. The flexibility in our funding allows that.
What did you look for in your growth funding?
EM: We work with a lot of the supermarkets but also large fashion retailers, and the time-frames can be tricky without the right finance. Currently we’re planning orders for October and November this year, and the pre-planning for these orders takes another five or six months in terms of when the catwalks come out and translating those trends into commercial fashion. On top of that, getting a garment produced can take four to six weeks, so It’s an enormous logistical machine from conception to delivery. Given all this, long-term confidence in our funding is critical. We have to plan so far in advance that it’s not enough to know that we have finance for the next few months.
Is it important for a funding partner to have sympathy with the business?
GE: It should do. I’ve met Carmel’s four shareholders – they’re all different, but they share the same values and principles. Emotionally we like to be close to the company. It’s not a term often used in banking, but the emotional aspect is a key part of trust and confidence in planning financing. It also has implications for the types of finance we provide. We applied our minds to creating an integrated funding approach, which dealt with not only Carmel’s working capital needs but also long-term loans, that has allowed the business to invest. The emotional connection is vital for creating such a partnership.
EM: I agree. You get drawn to people that are like you. The personal relationships have been great, and I think there’s something fundamentally good about working with an organisation that sees things the way you do. Our growth has superseded all our targets, and that’s been made possible due to the support of a trusted partner. We’re very very excited about the future and have no doubt that we’ve made the right choice with our funding.
This article is provided for information purposes only and should not be construed as advice of any nature. The views and opinions expressed are subject to change without notice.