Top Tips for Assessing Direct Equity – Investment Series Pt 2

Dequity Partners Corporate Advisory Dequity Blog

Top Tips Investments Series Part 2

Dequity is providing a series of articles of top tips for assessing investment opportunities. This is part 2 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.

Please see our blog Top Tips for Assessing Investments Series Part 1 which addresses the first question “what’s the deal?

In this, Part 2 of our Top Tips for Assessing 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.

The next thing we ask is “who do we know who could do this deal?”

One of the first things we ask is who has the capability and desire to invest in this deal? Unless we have a direct mandate from an investor, we have to decide who to market the opportunity to. We put a list of potential investors together and build what we believe is the essential investment documentation.

If we’re investing, we always want to see the following as a minimum requirement:

(1) Deal Sheet – a top level executive summary with pertinent facts and figures, this is the first level marketing document.

(2) Term Sheet – this lays out the general terms of the deal, the objectives, the funding requirements, any pre-conditions, the offered shareholding, use of funds, management, operations, business model, governance, timing and transaction closure sequence.

(3) Fact Sheet – this is a full executive summary including all pertinent information to make an investment decision and start the due diligence process.

(4) 5 Year Business Plan.With clear assumptions.

(5) 5 Year Financial Projections. With clear assumptions.

Some investors insist on seeing an information memorandum or “IM” format and we combine the above documents into one cohesive document in that case. However, private equity is not for the retail public, it is for sophisticated and wholesale investors so a prospectus or IM is not always required.

Tip #2 Do It Yourself

I know it seems strange that a corporate advisor and investor would suggest such a thing, but we believe you should at least try to complete the base documentation first. Why? Because by completing the first pass of documents yourself you will take ownership and learn where the gaps are. You can search the internet for templates and headings. Of course, you’ll probably need professional help to complete the exercise but you’ll have a far greater understanding if you at least try to do it yourself.

Keep it simple and ask yourself, would I invest from this information? Is there anything missing that should be there? Too much emphasis is put on document length, we believe in quality not quantity.

Ultimately, you are marketing the investment and as such every objection needs to be overcome. The aim of overcoming objections is to satisfy the investor that you have really thought this through and covered all the bases. The old adage “time kills deals” is pretty accurate. The more you can give the investor to aid their due diligence and enhance their decision making speed the better.

Tip #3 – Think, Research, Think Again then Write

Whenever we are commissioned to write investment documentation or we write it for our own investments, we spend a good amount of time on thinking it through and on research. It is the basis for everything we do from that point forward so we do the best we can with the information available. We refer back to this documentation when completing all the legal transaction documentation so we make sure it’s right. It is our solid foundation.

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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