Top Tips for Assessing Direct Equity – Investment Series Pt 1

Dequity Partners Corporate Advisory Dequity Blog

Top Tips Investments Series Part 1Term-Sheets_2

Over the next few weeks Dequity will provide a series of blogs of top tips for assessing investment opportunities. This is part 1 of a series of blogs to explain our assessment model a little more so that we can help both investors and owners do business.

At Dequity, we see quite literally tens of business plans and investment documents a month. More often than not, each has been professionally put together and yet we pass on many of them. When we are asked why, we try to give positive feedback, they are not always “bad” investments there are many factors.

The first thing we ask is “what’s the deal?”

This might seem a very simple question but you’d be amazed at how many information memorandums, term sheets and business plans fail to convey this message clearly and succinctly.

 Why?

Often it’s hedging by the owner of the business, almost trawling to get feedback before really offering anything. We strongly disagree with this philosophy. If we can’t get this straight within the first pass of the documents and a first meeting with the owner then we immediately pass.

You don’t go into a supermarket to buy milk and the manager says “it’s a really good milk, I’ve sold a lot over the last few years, lots of people want it so you’d better buy it quick, make me an offer”.

Rather, they clearly display size, quality, ingredients, shelf life and price. We don’t see why this doesn’t happen with direct equity investment documentation.

In fairness, most of the relevant information is there in the documentation, it’s implied in the numbers and it’s there if you read between the lines. Unfortunately, in a time poor industry, where many investment opportunities exist, no-one has the time to take in all this information and come to their own conclusions.

Tip #1 – Keep it simple. As simple as:

(1) This is the deal…

(2) This is how I valued it…

(3) These are my assumptions…

(4) This is what I want…

(5) This is when I want it…

(6) This is what your money will be used for…

(7) This is how much you will make…

(8) This is when you will get your return…

Whenever we are commissioned to write investment documentation or write it for our own investments, we spend a good amount of time on this. It is the basis for everything we do from that point forward. We often refer back to this when completing all the legal transaction documentation. It is our solid foundation.

In Part 2 of our Top Tips for Assessing Direct Equity Investments Series we’ll address how we assess the investment opportunity once the deal is clear and what we expect to see in the investment documentation.

Don’t have time to wait for our series of blog posts? Dequity Partners are available to assist and advise on a range of direct equity investment opportunities. Please call on +61 2 9258 1972 or go to our Contact page.

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