About the investors | What banks are looking for
Hey there,
I hope you are doing great.
About the investors - there are some thoughts I would like to share with you.
There are two types of investors: strategic and financial investors. At first, it might not look like there is a difference, but in fact, there is. And there is another party, that is rarely visible: the financing bank.
Often, banks ask buyers to conduct a due diligence for assurance. Even when there is no bank involved, strategic and financial investors conduct a due diligence. This helps be aware of any risks and opportunities.
Now, you might think, it doesn’t matter, which potential investors are looking at your firm. But it does. It makes all the difference. Each investor group has its individual focus. Not to forget that in the end, each investor has its own preferences. So, let's look at them.
Financing banks
The financing banks don’t assess growth or product leadership. Banks focus on the balance sheet. They want to understand the existing debt and the debt capacity, any working capital and investment requirements. In particular, any seasonality (e.g. ramp-up of production requiring short-term financing). Also, banks analyze cash flow statements and cash conversion to assess if the company is able to cover its debt.
Key takeaways
- Strategic investors analyze the fit and technical capabilities. Also, they look at the employees as a whole and want to assess the cultural fit.
- Financial investors focus on growth and a successful track record in the past. This also includes an experienced management team.
- Financing banks need proof of the ability to convert earnings into cash.
Further articles?
Check out my content page with many more articles here.
I hope this provides some insights and as always feel free to reach out if you have any questions.
Best,
Jan
Hi, I’m a creator
Hey there, I hope you are doing great. This is the third part of our working capital analysis. Trade working capital consists of inventories, trade receivables, and trade payables. Other items could also be classified as trade working capital. This is dependent on the company’s specific business model. The main goal is to understand what drives trade working capital and how it developed over time. There are several main analyses that you should conduct. Monthly working capital analysis...
Hey there, I hope you are doing great. A number is not always a number - that's the title of this insight. Much of my content circles around running certain analyses and asking questions. But let’s step away from the numbers for one moment. As important as being able to analyze the numbers is to understand where these numbers come from. In due diligence reports, this is often called the “quality of financial information”. This section assesses the quality of the data. It also shows...
Hey there, in the course of a due diligence, it is important to understand capex. This is the last step in the cash flow calculation to derive the free cash flow. The free cash flow is used in many valuation models to calculate the value of a firm. Capex stands for capital expenditure. It relates to investments into fixed assets, i.e. tangible and intangible assets. Two aspects matter in a due diligence. First, what’s the recurring level? And second, which portion relates to maintenance and...