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Equity capital raise for a company in the manufacturing sector
THE TARGET
An entrepreneur in the pet food production sector had already spent several years building up his own production capacities as well as a sales structure that included offline (own retail stores) and online (own web store) elements.
The company was developing so well that production had reached its capacity limits. Accordingly, an investor was to be found who would contribute funds in the course of a capital increase in order to expand these capacities.
FIRST STEPS
In a first step, meaningful documents were compiled with the help of the company’s own information, such as annual financial statements, interim statements, discussions with the entrepreneur on growth prospects and the market, as well as own analyses. These documents were suitable for providing a good first impression of the company itself, the use of funds and future prospects. But also to be able to support any claims made in follow-up discussions
In a second step, suitable investors were researched and approached.
INVESTORS IN THE MARKET
Investor search and approach processes are always specific. This is because professional investors always act according to their own, specific investment criteria, not only in terms of size, but also in terms of sectors and with regards to other parameters.
The more accurately these criteria are taken into account, the more the supposedly broad spectrum of investors narrows. What’s more, additional preferences often emerge during discussions with both the client as well as the potential investment fund or strategic player.
Over time, you have developed a business model that defies clichés and would like to discuss who might be a potential investor?
This resulted in a focus on financial investors. These in turn can be very roughly divided into the categories of venture capital vs. private equity investors.
Venture capital investors have the reputation of only investing in new technologies. This is not entirely correct in that the primary investment criterion is the probability of being able to sell the company within a few years at very significant multiple oft he valuation the investor itself invested at.
Private equity investors are also very demanding in terms of their return requirements, but less speculative and rarely, if ever, invest in companies without good, or at least comprehensible, sales and profit development.
The development of this company, its solidity and the market environment made spoke in favor of the continuation of far above-average results, seemingly matching private equity standards.
This led to a focus on discussions with private equity investors, and ultimately a candidate emerged who, on the one hand, seemed to have the best understanding of the market and, on the other hand – which is always one of the most important decision-making criteria for the entrepreneur – appeared to be someone with whom it would be possible to cooperate in the coming years.
Scrutiny and outcome
After a total of only two personal on-site appointments, in this case the financial plan in particular was scrutinized and a preliminary agreement (letter of intent) was signed, which addressed the key points of the final investment agreement.
In the next step, the company underwent due diligence, whereby service providers commissioned by the private equity investor scrutinize the company in a very structured manner. In this case, the market and competition were of particular interest, which were examined in detail in a separate “Commercial Due Diligence Report”.
Only after these and similar reports from the due diligence service providers confirmed the statements previously made by the company and in rebus as consultant did the project enter its final phase with the final negotiation of the investment agreement, its notarization and the investment by the private equity investor.
in rebus corporate finance prepared all transaction-relevant documents in cooperation with the founders, identified the buyer and advised the founders on every step of the process – without providing tax or legal advice.
