Record Point is an independent corporate advisory firm with operations in Sydney and San Francisco. We specialise in domestic and cross-border advisory services for public and private companies including mergers and acquisitions, capital raisings, corporate partnerships, debt advisory, restructuring, strategic reviews and valuations.
Successful business owners are regularly on the look-out for opportunities to partner with high quality, sophisticated investors to help achieve their business objectives for growth and expansion. With the local IPO market experiencing a period of instability (see our October blog), businesses can increasingly benefit from exploring and evaluating private capital options to fund growth or access liquidity. In 2020, we expect the significant investor demand for attractive investment opportunities seen in 2019 to continue.
Australian corporates generally have sound balance sheets and are actively seeking to supplement low organic growth options with higher returning, synergistic growth options. Furthermore, there is a significant amount of surplus private equity and venture capital funds competing for a limited number of quality investment opportunities. Additionally, the low interest rate environment is driving family offices and high net worth (‘HNW’) individuals to search for higher yielding assets.
For business owners, selecting the right partner often depends on who can provide the most capital at the cheapest rate, however it may be equally important to find a partner who can assist from a strategic or commercial angle. Cheap capital is not the only consideration driving a business to greater success and partners are finding it increasingly important to differentiate their capital proposition from others. There a range of considerations a business owner should evaluate to assess which investor type may be an appropriate partner.
Strategic Corporates
Finding the right partner for growth is not simply about finding the partner with the deepest pockets, rather there are a range of additional considerations such as identifying partners who can provide valuable expertise, insights, solutions or networks to address the many challenges a business may face, including product and customer development, new market entry opportunities and potential synergistic growth opportunities with other portfolio companies.
By partnering with another business, companies can differentiate and diversify themselves to achieve business growth and expansion in Australia’s competitive business landscape. Strategic and joint partnerships using innovative investment structures provide business owners with options to retain ongoing / majority ownership interest in their underlying businesses. However, business owners should be cognisant that following a strategic investment, businesses may lose their perceived independence by aligning with one industry player and may also inadvertently limit their exit options to ultimately sell the business down the track. Business owners can implement clearly defined shareholder protections and rights to mitigate these risks and retain a suitable level of control and flexibility.
Financial Sponsors
“Dry powder” (an informal term used to describe the cash available for investment opportunities) has continued to grow in recent years and is now at an all-time high. Private equity managers, venture capital investors and superannuation funds continue to search for ways to deploy the estimated US$14.8 billion of dry powder in the Australian market (according to the Australian Investment Council) by identifying innovative deal structures and alternative asset classes.
With significant private capital available, financial sponsors may be attractive partners for business owners that would prefer to remain private with a sophisticated investor onboard who is motivated and incentivised to continue to increase the value of the business. Business owners should consider the level of ownership selldown they are willing to accept as financial sponsors generally seek a significant (and often controlling) ownership stake and will invest with a targeted hold period on the basis of reasonably high return expectations that may not always align with long-term founder objectives.
Family office and high net worth Investors
HNW investors are increasingly looking to diversify their investment portfolios outside of traditional investment classes of listed equities and real estate and into alternative investment classes including direct investment in private companies. Investment objectives for HNW investors are often more passive in nature and can provide a suitable funding solution for private businesses requiring small to medium sized capital injections.
HNW investors may be attractive to companies operating in niche markets or to start-up / early growth businesses which have an insufficient track record to secure institutional investment. Businesses may also benefit where the initial investment required is too small to attract institutional funds.
Summary
With a low interest rate environment and a record level of investible dry powder in the market, it is currently an opportune time for private companies to assess the benefits of taking on a strategic or financial partner to assist them to execute their growth strategy.
If you are looking for a capital solution or a new partner to support the growth of your business, please feel free to reach out to one of the Record Point team and we can help you navigate a path forward.
For more Information
Record Point is an independent corporate advisory firm located in Sydney, Australia and San Francisco, United States. Our team of professionals serves public and private companies across numerous sectors with a particular focus on healthcare, technology, consumer and industrials. Our team has more than 50 years of experience successfully leading and executing in excess of A$30 billion in transactions. Contact us to discuss your next strategic move on +61 2 9078 8250.
January 6th, 2020