Private equity for mid-sized companies

Defining the purpose of the investment clearly

In a capital increase, the new capital flows into the company. It is available to the company for the agreed projects. When existing shares are sold, the purchase price is generally received by the selling shareholder. Such a transaction does not in itself create additional growth capital within the company. Both elements can be combined in one investment.

The distinction also affects the shareholding: in a capital increase, the new shareholder's stake is based on the company value after the financing; in a share purchase, it is based on the value before the transaction. Special rights, additional financing instruments and transaction costs must be considered separately.

The investment structure follows the business objective

A minority investment can be appropriate if the existing shareholders wish to retain the majority and bring in a partner for the next stage of development. A majority sale can be combined with a change of shareholders, a succession or a reinvestment by the current owner. Equity capital covers various financing occasions and forms of investment, each of which must be assessed individually.

In addition to the shareholding, we recommend considering how the planned development will be financed. If further acquisitions are intended, it should be clarified early whether additional equity, debt or a combination is planned for them. An investment made today must also be compatible with future capital requirements.

Discussing decisions and participation rights early

The shareholding alone does not fully describe the future cooperation. In our advisory work, we therefore also consider responsibilities, information rights and the intended decision-making processes. Which investments require approval? How is an advisory board composed? What expectations exist regarding distributions and a later sale?

These questions should be included early in the commercial negotiation and subsequently set out contractually with the legal advisers. The entrepreneur must be able to see which responsibilities remain with him or her and which decisions will require coordination with the new partner.

Selecting the capital partner based on specific criteria

In its capital search, the German Private Equity and Venture Capital Association (BVK) distinguishes, among other things, by capital requirement, financing occasion, sector and form of investment. These criteria also provide a sensible starting point for an owner's own preselection.

For further assessment, we recommend discussing the intended holding period, the contribution to the company's development and expectations of the management. Equally important is how additional investments will be decided and how the cooperation is intended to work in a weaker financial year. A convincing presentation should be complemented by substantive discussions about these situations.

Preparing equity capital from an economic perspective

As an independent M&A and corporate finance advisory firm, Fox Capital supports mid-sized companies in assessing their capital requirements, developing an investment structure and approaching suitable investors in a targeted way. We combine international capital partner contacts with financing and structuring expertise. The starting point is a reasoned decision on how equity should support the company's development.