Attracting more capital to a company can seem like a difficult mission to accomplish, especially in a changing market like the Ecuadorian one. However; Raising private capital is one of the most flexible and safe instruments that entrepreneurs can use regardless of the situation, since it allows them to grow together with investors. How to prepare and be suitable to raise private capital and how does this mechanism work? Galo Aguirre Fabara, Managing Director of AAA-Corporate Finance, provides valuable advice in this regard.
Some data on capital raising in Ecuador:
Before getting into the matter, let’s review some relevant figures for the segment in the country.
The sector that most frequently raises capital in general is the retail and point of sale industry, since it allows for expansion and scalable profitability. This is in accordance with the processes carried out by AAA Finanzas Corporativas.
Furthermore, in the country it is more common to capitalize companies than to sell shareholdings. That is, the majority of capitalization processes correspond to new and fresh capital, maintaining an estimated ratio of 80% new shares and 20% transfer of shares, taking into account the statistics managed internally by the Firm.
What is capital raising and what are its benefits?
“It basically refers to opening the share package of a company, in order to generate expansion, finance needs, integrate operations, growth in various ways, exit of shareholders, among other projects or plans that require financing,” explains the executive of AAA Finanzas Corporativas.
Thus, a capital raising or capitalization aims to obtain fresh capital, with the main purpose of expanding operations in a certain period, being an investment contribution, as a shareholder, it represents an excellent option to maintain interest payment obligations or capital amortizations, since, if the business wins, everyone wins, and if it loses, both are participants in the risk.
The key to success in this type of instruments, especially when it comes to private capital funds, is to develop a solid expansion or growth plan, supported by latent market opportunities, through which the advantages are communicated in a timely manner. to potential investors, who will decide to bet on the company within a pre-agreed period.
¿How to raise capital?
- There are two ways: 1. Selling a share of the company’s available shares and 2. Adding new shares to the company.
- In the first case, the company will continue with the same share value and the shareholders sell or assign their shares to transfer them to an investor or a third party (in other words, original shareholders divest), this is a common figure when a capital fund enters. private for expansion.
- While, in the second case, the value of the company increases in relation to the contribution provided by the investor, diluting the participation of the original shareholder. It is styled in strategic partner transactions or stake sales.
- These modalities are used depending on the purpose of the resources or the transaction sought by those involved.
- In relation to the available sources of capital, we can list some possible investment modalities or transactions such as:
- Investments of private capital funds in cases of company expansion.
- Investments from strategic partners in cases of integration of operations.
- Acquisition of shareholding in cases of investment or diversification of resources or disinvestment.
- Increase in the Company’s capital in cases of reinvestment and growth of operations, among others.
¿How to prepare for this type of process?
- The first step is to value the company, since in order to include a third party it is necessary to have a starting scenario to define a transaction, in the same way it helps to determine the investment to include according to the company’s expectations, whether to maintain control of the company or to give it up.
- For this, it is key to model the business or transaction plan that is going to be offered to the investor. This plan will say whether the profitability required by the fund is within the policies and expectations it manages with respect to the programmed exit it has.
- Have an expert advisor to understand the context and model the real situation of the company, generate a fair valuation and help negotiate with a third party the entry and exit of the target capital in appropriate terms for the company in question and its shareholders.
For more information contact:
Press Office AAA Finanzas Corporativas
Cristina Cacuango / Andrea Bonilla
Taktikee Communication Consultants
cristina@ttk.ec / andrea.bonilla@ttk.ec
0992721477
(593) 2 6002006/22
www.taktikee.com.ec