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WHAT IS ROYALTY FINANCING?

Neil Johnson is the CEO and founder of London-listed Duke Royalty Limited

 

The odds are that if you live in the UK and rest of Europe you have never heard of royalty finance. However, more than a decade after the 2008 financial crisis and on the back of a recent sell-off in global equity markets, the word around royalty financing is inevitably spreading rapidly. This is helped by the fact that royalty finance represents a £50 billion market in North America, meaning that it is now well-recognised as a very viable way of funding growth across a range of sectors.

 

Royalty finance sees well-established small and medium-sized enterprises (SMEs) receive capital in return for a slice of their revenues. Models can vary, but typically royalty financing works as a type of ‘corporate mortgage’, where a business exchanges a small percentage of its revenues over a long period of time in exchange for capital today.

 

Neil Johnson

Royalty financing may be a new concept to the UK and Europe, but providers, such as London Stock Exchange-listed Duke Royalty, are now starting to gain traction. That is because the advantages are clear: unlike other options, royalty financing enables businesses to realise their long-term business goals without compromising owner control, diluting equity shares or adding debt to the business.

 

Since the royalty company is taking a slice of revenue from the business, it also means that the interest of the two partners are aligned (arguably, unlike other traditional finance methods), with the repayment percentage adjusted annually to reflect any movement in an investee’s revenues.

 

On top of that benefit, the company’s repayments cover the principle as well as the interest.

Many companies use the money to replace existing short-term debt to allow them to grow.  Royalty financing eliminates re-financing risk because it has a payback over decades, hence the analogy to a ‘corporate mortgage’.

 

Stock shock and nervous banks

 

There are, of course, other options for businesses to raise capital. They can float on a stock market, for instance. But given the global equity market sell-off, which saw some of the world’s leading indices and companies like Netflix and Alphabet take a dive, the landscape is looking unclear. That is without taking into consideration how much management and owner control is diluted.

 

Elsewhere, banks seem somewhat nervous to lend to SMEs. In May, the UK’s Federation of Small Business (FSB) reported that small credit business approvals had fallen to a 30-month low. With only 60% of small firms that applied for credit being successful. The worrying statistic reinforced a sentiment that is already widely known and reported on in the country, being the ‘SME funding gap’.

 

This gap is a major concern for the financial sector as SMEs employ 60% of the UK’s private sector workers. Despite this concern, in March 2018, pressure group the SME Alliance, which represents thousands of small businesses, told MPs on the House of Commons Treasury Select Committee that they are finding it more difficult than ever to take out loans with banks.

 

While a recent report from the Treasury Committee on SME Finance found that the percentage of SMEs using external finance has stalled in recent years, sitting at 38% in 2017, compared to 37% in 2014, 2015 and 2016.

 

While this stagnation in traditional banks’ lending to SMEs makes for concerning reading, it also highlights the opportunity for alternative finance solutions like Duke Royalty.

 

Although royalty financing may still be in its infancy the UK, as more SMEs are educated and learn about its benefits, it will continue to play an ever-growing role in lending to businesses that traditional banks are increasingly ignoring. Duke Royalty, for example, has deployed £43m in the last 18 months alone through five new investments, and three follow-on investments.

 

Amid a quickly changing finance environment among SMEs in particular, royalty financing is set to grow from strength the strength across the UK and Europe.

 

 

 

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Finance

HOW TO ENSURE YOUR CHILD’S ASSETS ARE PROTECTED

TAX HAVENS

Making money is one thing, but protecting it is another – this is particularly true if you want to pass your assets onto your children. Any reputable bank, solicitor or lawyer will tell you that individuals who have amassed some form of wealth need to protect their assets, especially those with a high net worth. In the event of your death, there are many loopholes that could stop your children from benefiting from your assets, often causing further distress for your loved ones. It is therefore important to shield your assets from any possible risk by having a secure, legally binding plan in place.

As divorce rates in the UK rise, marrying more than once has become much more common. Research shows that one-third of all marriages in England and Wales are between couples where at least one of the spouses has been married in the past. This set-up often brings children from previous relationships, resulting in a UK-wide rise in blended- and step- families. As such, many people find themselves trying to manage the financial needs of their current spouse while ensuring that children from a previous relationship inherit their fair share of your estate. That’s why making a Will is an essential part of protecting your assets for those you leave behind.

 

MAKING A WILL

Making a Will is a necessity that many people ignore. Without a current and valid Will, the law decides who gets what and how much. The majority of your assets will likely be given to your spouse, who can then leave it to whoever he or she chooses. Even if you are separated, but not yet divorced, your children from your previous relationship may be disinherited if your new spouse decides to keep your inheritance for themselves. As such, it is crucial that you update your Will after any life-changing event to ensure the right people benefit from your estate.

For individuals who have remarried, the best thing to do is to write up a will that includes a trust. Not only will this protect your children’s assets, but it will also allow you to look after any future spouses in the event of your death. Your future spouse can access your assets during their lifetime, but once they die, your children will inherit the remainder of your estate.

A trust is particularly important if you don’t have a prenuptial agreement as it will ensure that specific assets are preserved for designated children. However, in the event of a second marriage breakdown, a prenuptial agreement will ensure that the assets owned solely by you (or any assets acquired before the marriage) go only to your own children if you so wish. So, having both a Prenuptial Agreement and a Will in place should account for every eventuality. It’s about exploring the options available to you as to how you can leave your assets.

Thankfully, Turner Little’s Will writing specialists work closely with you to explore every avenue, giving you complete peace of mind. We protect your children’s assets at all costs to ensure fairness and financial security for the whole family. We advise on succession planning, skipping a generation, protecting the vulnerable, preparing for care fees, as well as tax reduction. So if you’re looking for a legally binding document that ensures your wishes are carried out in the most tax-efficient way, get in touch with us today.

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Finance

THE IMPORTANCE OF THOUGHT LEADERSHIP CONTENT IN THE FINANCIAL SERVICES SECTOR

The collapse of Lehman Brothers in 2008 marked a turning point in the financial services industry. Not only did the collapse have disastrous financial and regulatory consequences, but it also caused reputational damage on a mass scale, leaving the entire industry to rebuild trust. Indeed, as little as two years ago, AXA Group CEO, Thomas Buberl, commented that while trust may have returned to the financial markets, “it has still not found its way to society and citizens yet.”

Perhaps hauntingly, Mr Buberl also warns of the need to “better understand new risks to avert the next crisis”, which he says “could well have a non-financial cause.”

If the issue of trust remained fragile two years ago, then the challenges that COVID-19 has added only compound matters. KPMG recently reported that out of six principal matters financial services organisations face as a consequence of the pandemic, communications and transparency is right up there. For Executive teams and CMOs, in particular, this highlights the need to communicate effectively, not just with customers but with employees, suppliers and third-party dependents too.

But what does effective communication entail? As Yogesh Shah, CEO, iResearch, argues, now more than ever there is a huge opportunity for financial services organisations to leverage the benefits of thought leadership content within their communications strategies to re-build brand authority and trust at a time when it’s needed most.

 

Banking on industry expertise

Within every financial services organisation, a CMO will be able to find spokespeople with a wealth of expertise and experience in a range of industry matters. From data security to financial liquidity, business stability and risk mitigation, it is these experts that must form the backbone of an effective communication strategy. Effective communication, after all, relies on the ability of the reader to relate to their content; this in turn, relies on the ability of the author to convey their thought leadership position.

Thinking back to rebuilding trust post-Lehmans and beyond, there are many related and relevant topics to be addressed. What impact will particular regulations have on not just demonstrating compliance, but on providing customer insight as well as safeguarding customers and investors in the event of economic uncertainty? How will these regulations enable the market to continue to grow, whilst protecting data and removing unethical sales and promotions from the industry? Furthermore, how can customers be reassured about the use of automation, AI and data security in the midst of seemingly consistent reports of cyber security breaches? Every CMO should have a solid content strategy built around addressing these topical issues – and planning for other eventualities.

There are numerous examples of financial services companies that have used thought leadership effectively within their content strategies. In addition to the excellent example from Mr. Buberl, in response to the discussions around topics such as Brexit and the coronavirus, J.P. Morgan regularly produces thought leadership articles, reports and insights on the consequences of new developments and practical advice for not just its customers, but for the industry as a whole.

 

Demonstrating data depth

Using data within thought leadership content is also extremely important. Backing up key arguments with industry research or surveys to show why the issue or challenge is so pertinent, and how the rest of the industry might be responding to these issues, will also see engagement soar, especially if the research is relevant, timely and issues-driven. BlackRock Investment Institute has used data intelligently within its thought leadership strategy by creating focused investment information that aims to improve the way its portfolio managers control their funds and, importantly, helps its clients to maximise their own investment results.

 

Community and continued communication

Thought leadership content should be used to create a community; after all, every CMO will be aware that the financial services sector has been through the same challenges together for years. Capital Dynamics has been a prime example of this, regularly producing a 200-page guide of professional advice, guides, statistics and case studies in order to encourage other institutional investors to invest in its clean energy strategy. It is by creating this community that financial services companies can truly establish trust and authority with their target audience, and in turn, that the industry’s reputation can continue to be rebuilt. HSBC is demonstrating both data depth and continued community communication effectively in this space through their annual sustainable financing and investing survey.

 

Opportunities to engage in uncertain times 

KPMG highlighted how important both communication and transparency are for financial services organisations, and with so much change and turbulence currently across many sectors, customers in both the B2B and B2C worlds need to be assured that they can have confidence in financial services organisations once again; that they are one step ahead of industry issues and that their investment, in any capacity, is safe. And, with no doubt that more disruption and uncertainty is on the horizon, CMOs need to plan how they can use thought leadership content to support future contingency plans and be prepared with comments on possible scenarios.

By discussing issues directly relating to the sector and subtly showing the reader a solution to their challenge, thought leadership content will demonstrate invaluable industry expertise. Every CMO knows that content is king, but data-driven, issues-led thought leadership content is a proven way to appeal to target audiences and show how they can trust financial services industry once more.

 

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