Fundraising
Private placement
Almost every growing small or mid-size enterprise at some point needs one-time cash injections which are larger than its own operational cash flows. Typically, the need for such additional cash injections is caused by the company’s growth parameters, such as growing sales volume, geographic expansion, acquisition of smaller competitors, and maintenance of competitive strength and abilities.
While there is a wide range of financing sources and types available on capital markets, each of them implies specific restrictions and additional requirements for a particular business. E.g. loans of commercial banks are available to companies historically showing stable and long-term profitability, while public offering of equity shares or bonds is an expensive procedure which puts a lot of restrictions on the company’s activity (large-scale disclosures, maintenance of liquidity of the issued securities, risk of uncontrolled acquisition of a large portion of equity shares / bonds by non-amicable parties, etc.)
In this context, the most attractive form of financing is private placement of equity shares to third-party investors. Private placement is the direct sale of newly issued equity shares to institutional investors, such as private equity funds, banks, insurance companies and other financial investors. Private placements to large strategic investors are less frequent, as the investors of this type are not interested in the development of existing or potential competitors and would participate in such deals only if the mechanism of gaining control is predetermined.
Advantages of the private placement as a form of fundraising are obvious:
- Attraction of funds to the company without increase in the leverage, which may be very important in the period of intensive business development;
- Circumspect choice of the investor (and determination of the equity share which it gets), as may be convenient to the existing shareholders in terms of business philosophy and attitude;
- Savings on the cost and timing of registration procedures;
- Strengthening of corporate culture, since the purchaser of a minority stake requires an absolutely transparent business approach and tight control over it;
- Presence of a strong partner/investor increases the company’s ability to get access to new markets and develop additional competitive advantages.
Successful private placement involves the preparation of the company’s detailed business plan and the information memorandum describing the company’s investment attractiveness and the substance of its business to be presented to potential investors for consideration.
Another important success factor is the engagement of experienced financial and legal advisors having the requisite expertise of all stages and elements of the private placement and the ability to quickly prepare the client company for the deal, select appropriate investors, prepare necessary documentation and complete the deal.
Depending on the extent to which the business development plans are worked out, the whole process of the private placement can take XX to XX months.
In addition to high professionalism of its employees which have contributed to successful completion of various complex deals in the recent years, Aquila Capital Group maintains a wide range of contacts and connections with foreign institutional investors and Russian business establishment. This combination ensures our ability to efficiently exercise the whole scope of work in relation to private placement projects, from the evaluation of the client’s business plan and preparation of the investment memorandum to the arrangement of road-shows for investors and assistance in the structuring and completion of the transaction.