Is opening up your company to investors a good idea?
The process of finding new investors to bolster your business’ capital can be a complex one, complete with its own set of risks.
There are many reasons why a company might turn to outside investors. It all depends on the company's objective. Is it a matter of finding the right partner, structuring a transaction and a sustainable collaboration framework, or creating maximum value for all parties?
Why open up your company to investors?
Financing growth in all its forms (acquisition, human resources, investments...) can be done in many ways. The degree to which a company is in debt and its ability to repay new debt may hinder its access to traditional bank financing. Bringing in an investor can prove to be a cost-effective alternative for supporting development strategy or achieving a partial exit for the shareholder.
Who should your investor be?
Identifying and choosing an investor can be a complex process as the goal is to pick the best possible partner for the company. The selection criteria used to make such a decision should be strictly aligned with any predefined objectives (sustainability, development, search for synergies or specific competencies, etc.). The criteria should also make it possible to pinpoint a desired investor profile, whether the target is a strategic or financial investor.
What should your course of action be?
A company can involve a new investor by selling a part of the share capital to that investor, thus realising a cash out with a capital gain. Another possibility would be to carry out a capital increase in order to strengthen the company's equity with new liquidity.
A leveraged transaction, such as a Leveraged Buy Out (LBO), might also be an option, even for a partial transfer of ownership, to meet the same objectives and limit the dilution effect. Doing so, however, will require an additional layer of financial engineering.
Words to the wise?
A shareholder's agreement is key for solidifying any decision. This consists of setting down the rules for the future changes in the distribution of capital, while maintaining the initial philosophy and objectives of the partnership, without constraining the company's development. Preparing this agreement and hammering out its terms will require the guidance of experts.
As a specialist in company sales since 1994, Dimension SA, a wholly-owned subsidiary of Banque Cantonale de Genève, has the know-how and network of investors to conduct this type of operation alongside a company's entrepreneurs and to obtain the best value for the company and the best financial results for its partners.