Depending on your preferred investment or fund size and investment strategy, we guide many players that seek to exit their investments after 3 to 5 years in order to generate a multiple on invested capital of 2.0-4.0x and an internal rate of return of around 20-30%, and often even higher. In order to amplify your returns, we often work with private equity firms to raise a significant amount of debt in order to purchase appealing assets we jointly identify, in order to minimize initial equity requirement.
When we team up with a private equity firm our team of specialists first clarifies, prepares and sets out the client’s preferred strategy. There are multiple approaches we usually consider and work out in detail. Firstly, venture capital investments in start-ups and relatively new entities with huge potential, but a modest history of profitability. The prime reason here is to identify and swell companies that have the potential to fill a gap in the market or snoop up a large market share in an unlocked corner of the industry it is operating in.
Many of our clients are not keen on start-ups as they show an interest in mature companies with a long track record of profitability and appealing returns. The growth capital strategy we set out with them is aimed at expanding or restructuring the existing, established business by scrutinising their operational model, including costs, staffing, mission, use of technology and market or clients it serves. Many of these investments lead to minority stakes and our team is highly experienced in maximising the inflow of equity in that business even though our clients do not obtain overall control or a majority say. Many of our modestly sized clients prefer this strategy as it usually requires a smaller investment than an outright acquisition.
An alternative to growth capital injections in order to finance a restructuring, expansion or minority investment is mezzanine financing. This investment option consist of both equity and debt as the targeted company takes on debt capital that provides the lender the option to turn its investment into (part) ownership or equity interests in the firm it teams up with. For example,if the loan is not repaid under the timeline that was agreed, our team of experts can advise on the actions to take and the opportunities this may create. Rodschinson advises clients on mezzanine financing projects by analysing and valuing the target company’s product, service, track record and reputation, as well as its place in the industry. It then designs a viable expansion or restructuring plan, and proposes a realistic easy-to-execute implementation proposal.
Many of the clients we work with prefer a leveraged buyout approach. This strategy is used when a business borrows a substantial funds, usually via loans or bonds, to snap up another company, often a direct competitor. This is a common solution for private equity clients that have identified the potential to extract value taking control of a company for a period of time and leave the target after substantial value has been generated.
A large chunk of our clients has set their sights on real estate investments, it is one of the fields we serve best. Investing in appealing property assets is a key mission for many private equity investors; whether it be in the booming logistics space, residential, the relatively new asset classes of micro-living or student accommodation or event he struggling retail sector. Our team of experts are highly experienced in advising firms on core, core-plus, value-added and opportunistic investments. Our team assesses the level of risk, develops a comprehensive return strategy and considers market factors such as location, demand, supply and regulation. Closely related to real estate is an asset under management investment strategy: in fact, property investments are among the highest AuMs.
In addition to the options mentioned above, there are alternatives and other strategies that our team advises on, such as a fund of funds investment consideration. This allows private equity firms to diversify and has the advantage it offers investors the ability to border their risks by pouring capital in multiple fund strategies. Clients opting for this approach are often bigger market players, as funds of funds is usually a relatively expensive undertaking as this involves multiple layers of fees, such as management fees, a performance fee at individual vehicle level and fees set out at fund of funds level.
When discussing and preparing an investment, our team is quick and efficient when it comes to putting the deal together. Structuring the transaction is a key component of what we do and there are different ways to go about this. A route via common stock, and convertible preferred stock, is a highly common method in which a company is invested. What we do is structure the deal post-negotiations, identify the key stages and provide an easy-to-follow overview, including an anti-dilution clause, which will provide the investor with a degree of protection against capital dilution if issues arise later, for example a lower stock price than the investor originally agreed to or has paid.