Enterprises make acquisitions in order to – after holding it for a few years and, more often than not, restructuring – resell the acquired company at a profit. Unlike the strategic investor, the private equity entrepreneur is primarily concerned with cost-effective acquisition funding and expeditious resale, ideally by launching the acquired company on the stock market. While transactions of this nature used to be characterised by financing where the acquisition loan is redeemed out of the current revenue of the target company, and, in so far as possible, secured with the latter’s assets, this form of financing has by now clearly become more difficult to implement, not least due to the financial crisis. Therefore, private equity firms these days need to analyse the financials of a target company much more carefully to achieve a favourable forecast for the transaction. Our lawyers have assisted with countless acquisitions (see mergers and acquisitions), as well as structured finance solutions of this nature, applying the necessary specialist expertise. They have a high degree of experience in solving specific problems pertaining to this industry.
Telecommunications technology, biotechnology, the pharmaceutical industry, medical engineering and Internet-based commerce and services are typical growth industries in which the traditional bank loan is usually not available to start-ups and their founders. Oftentimes there is a lack of banking collateral. As an alternative, project financing by means of venture capital is the way to go. The venture capitalist usually receives shares in the financed company, and, in return, provides equity, without being given any securities.
Four complex questions are central to financing by way of venture capital: How can adequate control over the company be guaranteed even in the position of a minority shareholder? How can the venture capitalist’s risk be limited in the case of the business developing unfavourably? How can the founders of the company, upon whose personal co-operation the success of the company depends in most cases, be motivated, and if necessary compelled, to continue working for the company for a stipulated period of time? And finally, how can contractual provisions for the venture capitalist’s exit from the company be made in advance at the time of establishing the engagement?
From the perspective of the company founders, when it comes to designing the participation agreements with sufficient foresight there is also and in particular the issue of countering excessive demands for securing risks and exercising control posed by the respective venture capitalists, and thus preserving sufficient room to act and attractive yield potential for the company. Targeted advice will lead to the best solution for clients in this sphere of interest. This is where BMT has been assisting both founders and venture capitalists for many years.