Fundraising from private equity fund to fulfil growth strategy is one of the most widespread financial instruments for private companies globally. Such a transaction in Russia is a sign of strong expertise. Karen Dashyan explains the role of a financial advisor as a gatekeeper between promising Russian companies and private equity funds.
Attracting a financial investor is the financial and professional resource of the company which facilitates the fulfilment of its strategic plans and solves long-term goals, e.g. launch of a new product, geographic or industrial diversification or ambitious project of industry consolidation. The Russian market has its own specifics. First private equity funds appeared in Russia in the beginning of 1990s and actively developed throughout 2000s. At that moment successful investment activity coupled with tremendous growth of the Russian stock market led to outstanding returns. Currently the return on investment into private rapidly growing companies is slightly above the average returns in the emerging markets globally (15–30% p.a.). However, there is not many companies with strong fundamentals for fast growth in Russia due to growing share of state and large financial and industrial groups in the economy and other administrative barriers. Growth slowdown and lack of new ambitious business projects significantly complicated the search for new projects for private equity funds фондов. Taking into account the fact that the attractive market is accompanied with high requirements for business model transparency and sustainability, there is few companies in Russia compliant with criteria of investment funds. At the same time there is a number of weak points of Russian mid-cap companies which prevent the funds from recognizing their growth potential. The most widespread are discrete legal structure, non-transparent accounting, absence of mid- and long- term planning, underdeveloped growth strategy, absence of long-term incentive programs...All these factors may be the reason why private equity funds do not notice a lot of interesting companies – prospective leaders with high growth potential. Understanding of the funds' investment criteria on one hand and the specifics of the Russian mid-cap companies, on the other hand, is an essential requirement for an advisor in the private equity market. The aim for the player acting as a gatekeeper between the seller (the owner of the business) and the buyer (the investor) is to help the funds identify the current growth leaders and support the companies in passing ‘fine tuning’ which will let the investor identify the future champion. Such an advisor thoroughly studies the mid-cap market and leads the companies to the required level of readiness for private placement. Management, accounting, corporate governance, strategy of development – the business should be comprehensively and persuasively presented to the future investor and shareholder while the investment should be economically viable. Without doubt, the most attractive investment target is the business with strong market position and all prerequisites to become market leader in place. Nevertheless, it is important for the owner of the business to thoroughly prepare for the meeting with the investor, and, in case of success, to properly close the transaction. Support and preparation of the shareholders and management help them to successfully win such a complicated and diligent game.