So many family businesses that I have been to see recently are looking to turn their dreams into goals, with impressive ideas for growth and diversification; and a number of family offices and investment funds are seeking to invest in a minority share deal.
In many cases fresh talent on the leadership team is a perquisite to drive results and efficiency; but in addition to this, an injection of capital from an investor is critical to achieving long term goals. Why is this?
Minority private equity deals can be extremely beneficial for both parties when top line growth and governance are at the forefront of the agenda. To bring an investor in with expertise and credibility immediately adds value to the business and has the advantage of being able to open doors, and the obvious liquidity and strengthening of the balance sheet is clearly worthwhile! If you are dreaming really big and think of planning for an IPO in the future; bringing a shareholder into the business who is well known in the capital markets, will significantly help to ensure its success.
So what’s in it for an investor in a minority deal? Often there is synergy with what the seller wants out of the deal as they do not choose to invest based on price alone. They obviously want to see a healthy return but what is often important, is the value of the partnership in terms of motivation and overall intentions. The relationship between the partners is crucial alongside that of the senior management team for a deal to work in the long term.
So are you ready to raise capital and attract a credible investor? Ideas are great but realism is what makes money, and therefore you need to really understand the mechanics of your business. A SWOT (Strength, Weaknesses, Opportunities & Threats) analysis is a good starting point for this. Business owners are normally entrepreneurial, visionary and key risk takers; whereas investors are normally risk managers, which is where challenges sometimes occur in the closure of a deal.
The only way to prepare for this is to see your business through your prospective Investor’s eyes and prepare your documentation and meetings accordingly. This will ensure that you focus on the risk element and present your business as a good risk.
Ensure that your management team is outstanding. Your product has to be good but your team has to be great.
Your presentation needs to include market, competitive, & industry analysis as well sections clearly detailing your management team and your operating model/technology resources.
The Vision Statement needs to be inspiring with a clear line of sight with a road map of how you plan to get there. Don’t be concerned about your plans being challenged, as Investors like to see self-awareness in terms of being able to acknowledge improvements in the business plan. Working together to resolve areas of weakness will be critical once the deal is done.
Finally don’t get too hung up on how valuation and control of the business will work. So many deals go wrong at this point as negotiations start around % share to capital invested. Would you rather own 60% of a $100 million company or 80% of a $60 million company?
This is of course only a snapshot based upon conversations in the market, however what it does conclude is that Investment in People is crucial. You need to make sure that you have a best in class Senior Management team in place and hire a credible advisory firm to guide you through putting your business case together.
The UAE is going through an exciting time of change and period of growth. Make sure you take full advantage of this and grow with it. As the author Mark Twain once said; “The Secret of Getting Ahead is Getting Started”
