For Companies.
Private Equity Partnerships
In parts of the DACH economy there is still little known about cooperations with external equity investors (private equity (PE)). Some in the Mittelstand ecosystem might be reminded of the comparison between PE and locusts that the former party leader of the German Social Democratic Party (SPD) made in 2005. Despite some prejudices, the targeted use of third party equity can be just as sensible (or more so) as the use of traditional debt instruments (e.g. a bank loan).
DTRAG advises companies in the search for a suitable equity partner and represents your interests effectively in negotiations with the right partner. We are also happy to support you in the long-run post-transaction.
Why partner with Equity Investors?
The world of private equity is complex and can appear slightly opaque to those who are approaching the topic for the first time. The basic principles of private equity funding can be understood relatively swiftly after spending some time on the topic, though.
Simply put, the following considerations could support the case for a partnership with a PE investor from a company’s point of view:
- Complementing debt capital: Equity financing typically starts at the point where typical debt instruments stops to be available. Equity investors typically have a higher risk tolerance than debt providers. This means that a company might, e.g., be able to fund promising growth projects with the help of equity sponsors that debt providers might not be willing to finance, at the same time sharing the project’s risks with the equity investors;
- Faster Growth: With third party equity a company can realise investments, development projects or consolidation strategies (e.g., M&A) it would have not been able to implement without a private equity partnership, or at least not at the same pace. By accessing third party equity, the company can strengthen its market position;
- Succession topics: Private equity companies are natural buyers for growth-oriented businesses or successful Mittelstand companies. A qualified equity investor has, in addition to access to funding sources, the management capabilities to continue the operations of a target company successfully. The investor will typically ensure that a management team is being put in place or an existing team complemented, to ensure that the company is led into a successful long-term future with a strong governance framework;
- Value maximisation / Company sale: A cooperation with a private equity company can maximise the value of the company prior to a sale. The existing shareholders can remain invested in the company and can exit jointly with the equity investor at a pre-agreed point in time;
- Access to networks and experts: Professional private equity firms have access to a wide range of relevant contacts and experts a company can benefit from. This can, e.g., be very beneficial for a company’s business development, as well as for complementing the composition of the board of directors or when the company is raising debt capital.
According to Bain & Company the private equity sector’s dry power (uninvested equity capital) amounted to USD 3.7 bn in 2022.[1] This deep, private pool of capital can be accessed to complement established financing structures.
[1] https://www.bain.com/de/ueber-uns/presse/pressemitteilungen/germany/2023/global-private-equity-report-2023-von-bain/
DTRAG’s Service Offering
Before we accept a mandate, we want to understand your and your company’s requirements properly. We try to get there in an informal introductory meeting, where we will be in listening mode mostly. After this meeting we can start making proper recommendations, as to whether your proposition for a cooperation with a third party equity investor is sensible from our perspective.
To the extent that your project is suitable for a cooperation with a private equity investor, we would develop a plan with you, in which we identify the optimal structure for a potential transaction, as well as a first longlist of potential investors.
In a next step we would draft the documents required for supporting the transaction together with you – this could, e.g., be, a teaser (short information document), an information memorandum (long-form information document) as well as a financial model. In addition, we will identify and mandate external advisors, which are required to prepare a successful sellside due diligence process. The exact requirements are project- and sector-specific.
Once the transaction process has been prepared sufficiently, we will help you launch the process through a market standard investor reach-out process, with the aim of selecting the investor that is most appropriate for your plans (in one or several bidding rounds, depending on the process). Following the conclusion of the bidding process, we will also assist you through the subsequent negotiations until signing of the relevant legal documents and, if desired, also beyond this step.
Long-Term Consulting Services
Prior to entering negotiations with external financing partners, we will educate you about the ways of working of equity investors in detail and supply you with all the tools required for a successful negotiation process. During the negotiation process, we will obviously stay by your side and will support you in line with your requirements and needs.
Our objective is always a transaction that is sensible for all parties involved, entered into on equal terms and fair conditions. If a negotiation process should not lead into this direction, from our perspective, we would also openly discuss the situation with you and clearly set out your options.
Contact Us
We enjoy assisting our clients through the entire negotiation process with third party investors. If you would like to learn more about this topic, please feel free to contact us anytime on kontakt@dtrag.de.