How to successfully raise funds for your business (or acquire a business)

Are you considering selling shares in your business,
seeking private debt, or acquiring a business?

With the Covid-19 vaccine on the horizon, merger and acquisition (M&A) activity is expected to rise in 2021. A business owner might be tempted to acquire a business at a more attractive price, while struggling firms stand a better chance of raising funds this year now that people have waited to see the surviving landscape.

Retirement In Thailand a common reason for selling shares is that owners would like to retire and their children have no interest in the ‘family’ business. Many businesses began in the 1970-80’s when Thailand was experiencing huge economic expansion and today these original owners are ready to retire. Since then, Thailand’s economy has matured and this might mean less growth for a traditional business model, but rather more free cashflow and higher dividend payouts.

Technology Another common reason for M&A are advances in technology – businesses may find it easier to acquire a technology rather than develop it themselves, while successful start-ups may see synergy in acquiring a traditional business model or diversifying by acquiring additional start-ups.

There are some important steps involved in corporate fund raising: –

1) Business appraisal

The first step towards raising capital is normally to value how much your business is worth so that you can be confident about the price range for selling either new or old shares. MBMG has several years of experience in asset appraisal and company worth. A difficulty can be if a company doesn’t have attractive cashflows or has posted minimal profits (to save tax) and then we may have to consider alternative valuation approaches.

2) Funds required?

An owner will need to decide on the funds that their business needs and the options available for achieving this such as selling new shares or borrowing privately, or if an owner wishes to sell their own (old) shares rather than raise new capital. There are pros/cons for each option.

3) Personal tax advice

For the sale of currently held (old) shares, a business owner must carefully consider personal income tax consequences as normally shares would be sold at above their original par (cost) value. There’re different options to legally achieve tax efficiency when selling a business and this is something that we regularly provide advice on.

4) Teaser

What’s known in the industry as ‘teaser’, is a 1-2 page written and pictorial description of your business. This will highlight positive trends such as industry growth, market share, or expansion plans. The teaser is designed to generate interest from prospective investors without giving away too much, and certainly not the name of the business (a common error is that a logo of the business accidently makes its way into one of the photos).

5) A prospect investors shows-up

The next step is to guage the sincerity of a prospective investor. If believed genuine then the owner and prospect will sign a confidentiality agreement known as an ‘NDA’ and this can allow the buyer to procure confidential financial data from the seller.

6) MoU

A serious prospect will eventually be ready to sign a Memorandum of Understanding (MoU) which is normally an understanding to purchase subject to a due-diligence of the seller. The MoU basically says that if everything is in order (or better than previously known) and providing there’re no unforeseen major events during the due-diligence period then the deal will go ahead as agreed.

7) New Shares

If selling new shares then the seller will need to authorize share capital and registering this with the related government agencies.

Maintaining the current management In many cases, a deal does not work out exactly as expected, and its common that a buyer will require the current management to stay in place for 1-2 years following a partial or complete buy-out. This means that if you are an owner thinking about retiring then you need to plan a few years in advance as it can take at least a year to sell a business, and you may need to continue managing it for a period of time, such as two years, as part of a sales/purchase agreement.

Local banks might not be helpful We understand that many Thai or foreign businesses that have a foreign shareholder as the ultimate beneficial owner might in some cases find it difficult to borrow funds from Thai banks. This is unfortunate as it often raises the cost of funds for these firms. However, it’s always worthwhile discussing funding options with us in case we know of alternative inroads.

MBMG 

MBMG’s ‘one-stop’ service Regardless of the reason for M&A or fund raising, prospective stakeholders need to clearly understand the positive business drivers and uniqueness of a business model.

This is where MBMG Corporate Solutions can play a special role.