In order to raise funds from professional investors and banks, Russian companies must meet certain criteria to satisfy their requirements that include having a transparent legal structure, well-established corporate governance, and reliable and timely reporting.
At the same time, shareholders and management of companies must weigh the costs of transition to a more stringent structure for the sake of gaining access to equity and debt capital markets, and the opportunities the additional financing would offer.
Advance Capital works with all three most common types of financing:
- private placement,
- debt financing,
- and leveraged transactions.
- Leveraged Transactions (LBO/MBO)
Companies do not always have sufficient funds to finance M&A transactions. Furthermore, the cost of debt financing is usually lower than the cost of equity capital. Consequently, companies looking to improve their returns on invested capital often approach banks to request to finance part of their M&A transactions with debt. The ratio of owned to borrowed funds in a transaction may reach as high as 30% to 70%, and in some cases the share of debt can be even higher. Such debt financing — known as loan facility - has its specifics, both in terms of structuring a transaction and in terms of collateral requirements.
Advance Capital has experience in structuring the following types of transactions to finance M&A deals:
- Bridge Financing — usually a short-term loan to be repaid with proceeds from the placement of company shares;
- Leveraged Buy-Out (LBO) — investors’ acquisition of companies using borrowed funds;
- Management Buy-Out (MBO) — Management buyout of companies using borrowed funds (as a form of LBO).
Within the framework of LBO / MBO transactions, Advance Capital provides the following services to its clients:
- Preliminary analysis of the target company (market position, competitive advantages, degree of financial stability, investment prospects of the business);
- Comprehensive financial due diligence, identifying and minimizing risks of the company;
- Development of a financial model, analysis of the optimal capital structure;
- Assistance in structuring and preparation of the transaction;
- Participation in drafting and negotiating key legal agreements.
- Debt Financing
Debt financing is the most common form of business financing available to companies. This type of financing may be unavailable for some companies due to bank requirements on the size of the sales, the availability of collateral, or the level of liquidity.
The advantage of Advance Capital is not only our experience but also our network with a number of leading Russian and international banks that could facilitate access to debt financing for our clients.
The following is a list of services we provide in debt financing deals:
- Assist in document preparation for bank submission;
- Conduct negotiations with potential creditor banks;
- Evaluate the terms under which the banks are willing to provide funding.
- Private Placement
One of the types of equity financing is a private placement of company shares. This form requires an additional issue of shares by the company in a closed subscription to one or more financial investors.
This type of raising funds is widely practiced among high-growth companies that have limited access to bank loans, oftentimes for the reason that they are unable to match bank requirements on the size of sales, the availability of collateral, or the level of liquidity. One of the highlights of private placement is that most of the proceeds from the placement are allocated to finance the company’s investment program. This fosters the company to expedite its development.
The Advance Capital team has considerable experience in private placements. We completed the placements of a major independent gas producer and Genser Group of Companies to institutional investors.
The following is a list of services we provide in private placement deals:
- Evaluation of strategies and business plans of the company, and the efficiency of management team;
- Preparation of marketing documentation, and organization of a tender among institutional investors (including preparation of the information memorandum, presentations, etc.);
- Organization of meetings with potential investors (a road show);
- Analysis of proposals from potential investors, preparation of a term sheet and exclusivity agreements with a likely investor / investors;
- Organization of legal and financial due diligence;
- Development of legal and tax structure of the placement, as well as any necessary changes in the legal structure of the company;
- Negotiation of the terms, including the size of investment and the structure of the transaction;
- Organization of settlements between the parties, closing of the transaction.