“How to choose the best travel partner for your company”

It´s not unusual for us to receive a phone call from a client that has been approached by a Private Equity firm, interested in investing in their company. Most entrepreneurs for mid-sized companies in Spain have had little or no contact in the past with this type of financial investors, and consequently many times an initial reaction to an approach of this type is one of skepticism.

Since gaining popularity in the private investment landscape in the United States in the 80s, Private Equity investors have become a relevant actor in Spain, providing liquidity for a relevant amount of transactions. In fact, according to proprietary research done on transactions completed by our IMAP organization, within which we complete over 200 transactions per year, on average, 22% of closings have a PE involvement. Likewise, according to data obtained from BvD for the Spanish M&A market, approximately 15% of closings in the 2018 – 2020 period were with Private Equity companies.

Consequently, it is fair to recognize Private Equity’s relevance in the current investment landscape. And therefore, it is also worthwhile to overcome initial skepticism and consider whether a Private Equity firm could be an ideal partner for you and your company’s future.

¿Private Equity or Strategic Investor?

Based on our experience, rather than discard a Private Equity firm up front, it’s advisable to reason whether they could fit well with us, depending on our company’s situation and what owners wish to pursue. The following table broadly describes what each investor type usually looks for, and consequently, could help in making an initial assessment:

Clearly, shareholders of companies looking to retire and make a rapid transition to the acquiror would most surely be more interested in pursuing a strategic investor. The company would stay in the hands of a stable, long-term investor and present value of the company is normally recognized in market valuation based transactions.

However, in some instances, shareholders want to step up their game and lead their company into being into a true market leader. Joining forces with a Private Equity firm is an obvious way to achieve this, and to eventually take another bite of the apple with a joint exit. In fact, our experience tells us that projects that go well many times allow the original shareholder to make more by selling his or her minority interest at the exit, than what he or she made by selling the majority at the initial sale.

So even you think a having Private Equity firm as a partner may not be your cup of tea, it’s sometimes worth giving a second thought by considering its pros and cons before refusing to go down that road.

Nov 29, 2020

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