The main differences between PE, VC and strategic sales

There are numerous types of investors when looking to sell a stake in a business or get capital in, and which is right for you will depend on your motivations for a transaction.

For example, are you looking to take money off the table through a sale, or to get capital into a business to finance growth?

Let’s look at the main groups of investors.

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The best outcome may not be what you initially anticipated...

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Venture capital or growth equity

Growth and venture capital transactions are often minority ownership and structured as capital into the company, rather than sales of shares. They often invest in less mature companies in terms of profitability, but with a proven business model and high growth prospects. Market size (in terms of total addressable market), growth, product/technology and quality of the founder-team are typically key in investment decisions.

In terms of deal size, venture capital deals focus on the €5-20 million range on so-called series A-C, whereas growth equity investors typically range from €20-100 million.

How can we help?

Ultimately, which of these options is best for you will depend on the specific circumstances of a business owner. Do you wish to remain involved with the company? For how long? Are you looking for investment to grow the business? Or is a sale designed to release the value of what you have built?

There are numerous permutations to consider when completing a deal and Clearwater can help guide a seller through the process. Often it makes sense to include different groups in a process to get multiple concrete offers and different structures on the table.

The best outcome may not be what you initially anticipated.

Private equity 

Private equity (PE) are most often majority owners in a business they invest in and structure their acquisition of shares through a combination of equity (from the PE and re-investing sellers) and external debt.

They prefer acquiring profitable companies with continued strong organic and inorganic (e.g. M&A) growth opportunities. They are looking to increase the value of a business, usually over a three-to-five-year time period, before making an exit.

PE are typically relatively active throughout their ownership, working mainly through the board of directors, as well as relevant parties on a project basis (e.g. supporting on M&A). They have an ambition to at least treble the value of their equity investments, translating into a yearly return requirement of 20-25%.

PE investors do not often bring in new capital to the company in the initiation transaction.

Strategic sales  

A strategic sale typically refers to the sale of business to an existing business, e.g. a peer operating within the same market. Around 50% of all M&A is strategic or industrial transactions.

The main objectives of these buyers include gaining access to new markets, acquiring valuable technology or intellectual property, expanding product offerings, eliminating competition, or achieving other long-term business objectives.

The timeframe to realise value from a strategic sale may be longer, with buyers under less time pressure than PE investors.

Industrial conglomerates also fall into this category, operating a range of independent companies, potentially in different markets and geographies.

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We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.