What kind of financial investor is right for you?

The business is at the heart of the matter

Many enterprises in Germany’s Mittelstand require capital inflows in order to finance their growth or to complete the process of succession planning.  In addition to standard external sources of finance, cooperation with a financial investor represents an alternative source of funding.  Direct investors can be a useful partner or shareholder, as they act more entrepreneurially than pure external funders.  However, there is a wide range of potential investors and therefore you should pay close attention to finding the right partner for your business.

Why is capital required, and how much?

First and foremost, that is the core issue that you need to address.  Do you need finance for growth or expansion, potentially as a founding entrepreneur, or is the focus on restructuring?  Are you planning on spinning off a new company from an existing part of the business, or setting up a new group company to address a new business area – or do you simply want to sell off an existing part of your business?  Changes in structure may also be related to succession planning or a change in ownership of the enterprise.  Whatever the purpose, you should be able to put an approximate figure on the amount of capital required at an early stage of the transaction.

What are your expectations – and what are your deal breakers?

Are you looking for someone to act as a pure financial investor?  Or would you prefer to have someone who can contribute strategic and/or operational know-how about your sector or particular processes?  How much say in the affairs of the business should the investor have?  Do you expect the investor to be restricted to a minority stake, or would a majority shareholding also be acceptable to you?  Are there considerations to be addressed that are specific to the enterprise, such as the shareholder structure, the management team, or particular cultural aspects?

Identify the investment criteria of potential investors

Private equity investors – those who make equity investments outside the provisions of a stock exchange – holding companies or individual investors are a possibility, and as such, you should be familiar with the criteria and strategies they use when investing:

• Who is the investor, and who are the shareholders backing the investor?
• What does the investor’s portfolio of holdings look like?  What does the portfolio focus on – e.g., particular sectors, SMEs, countries, etc.?
• How large is the portfolio of holdings?  How long does the investor remain involved?
• What kind of strategic and operational influence is being sought?
• What requirements are specified in relation to the management quality

No matter what, every investor will demand a business plan, implementing the objectives behind the investment.  The investor will ensure that there is sufficient cash flow in order to cover the liabilities arising from the investment.

Talk to us – your trusted advisor and auditor – about your intentions for investment and let us support you through the process.  If, in addition to pure economic factors, the “chemistry” is right, you can successfully take your business to the next level with the help of an investor.