M&A Private Equity Brokering

[bei_ge_wang]

M&A Private Equity Brokering by Chew Kiat Yong

What you all think?

 

[bei_ge_wang]

The story of the project
This will be an industry-changer in the areas of mergers and acquisition!

As you know, there are many ways businesses can raise funds. Most commonly this is done via:
1) borrowing from the banks (aka vanilla loans, invoice financing, property-machinery loans)
2) borrowing from the market (aka issuing bonds).

What most businesses aren't aware of (or aren't eligible for due to their smaller size) is that they can raise funding via selling of part ownership via 3) listing on the stock exchange.

Right now, i would like to bring about this game-breaker. 4) Exchange of ownership via private brokering. This is an option toward active, easy, convenient and low-cost way of raising funds via selling of part or whole ownership of businesses.

With this option, there are 3 MAJOR benefits. 1) Businesses of all sizes (from the sole proprietors to the institutions) will be eligible for participation. 2) Exchange of ownership dollar-value need not be exposed to the cycles of the equity markets nor incur the hefty running costs for regulatory compliance to stay listed. 3) Reduction of frictions (relative to the current private equity participants) in matching of buyers to sellers, translating to greater efficiency in the matching process.

In an arena where investment banks tend to be more reactive than proactive (in seeking out opportunities), there is tremendous opportunity. In this largely obscure area, i will engage a more hunter approach to letting business owners know of such highly-attractive option.

With this, possibilities are limitless!

It can be 1) to raise funds for business plans, 2) to retire via sell of entire business, 3) to gain expertise in certain areas through selling of stakes to an 'expert' partner, 4) vertical integration of supply chain through buying of suppliers and customers, 5) horizontal integration via acquisition of rival peers to gain market share.

While i understand i do not have fanciful pictures, i come with a sincere and keen heart. Please do support this initiative, be a part of this upcoming industry changer!

 

[bei_ge_wang]

How the funds will be used
My funding goal is at $50,000.

$25,000 will go to legal fees. Being pioneer in the field, bulk of the funds will go toward legal fees as we break new grounds. I will engage a legal professional (with expertise in corporate finance) in drafting legal documentation, such as the Non-Disclosure Agreements (which will bind the buyer and seller as their navigate their purchase/sale decision making).

While keeping costs low and manpower slim, $18,000 will go toward the cost of first 12-month hiring of an all-rounder assistant (calculated at $1,500 x 12 mths) to be a hunter-farmer role for the buy and sell sides, as well as to run side-tasks of organising meetings and attending to the phone.

$4,000 will go to necessary IT equipments to setup a small workspace and first 12-month rental of small work space at a budget location.

$3,000 will go to daily operational expenses.

 

[bei_ge_wang]

Challenges
I believe the emergence of this business will change the face of the M&A industry. Major IBs and smaller professionals will jump into the scene, once they see the growing success of this new business. As such, we will need to gear up and size up as soon as possible to reach a dominant size and reach.

Once we have a good grasp on local (Singapore) market, regional expansion is planned to commence by the 3rd year. With all things going as planned, global move will happen by the 10th year.

Also, starting off we will be offering only full-cash purchase/acquisitions. Over the 2nd year, it is hoped that we can go into semi-cash semi-bond based purchase where acquirers can pay a smaller purchase price upfront which will enable them to take on bigger purchases.

As such, i plan to setup an in-house legal and corporate finance team by the end of the 2nd year.

 

[CookieMonsta88]

M&A Private Equity Brokering by Chew Kiat Yong

What you all think?

I don't think its anything new, u might want to read up on how OTCBB came about, it is an exchange for penny stocks

I'm skeptical, personally I'll stay away, since there isn't any word on regulation which is the most important thing to look for when investing, it can be like the bitcoin exchange the business fundamentals all sound, only for the creator to "happen to misplace the bit coin folder and all the bit coins to disappear"

Also on unregulated exchanges like these, manipulation can be rife also with the stocks issued

So I would just sit on my hands and watch first, its still to early to say if it would work or not, unless u have spare cash which won't hurt u even if u lose it, otherwise its better to sit this out

To tell u the truth what he wrote is nothing new, its just letting smaller sized companies issue stocks in a market place which otherwise can't issue stocks or bonds because they fail the capital requirements of mas, and the last segment abt small upfront purchase, is just margining or leverage

and so u might want to figure why banks and markets might not want to let them issue bonds and stocks in the first place, probably risk too high

 

[platopus]

Sit it out lah.
Call me a skeptic.
Anyway, my hunch is that you are related to this startup? Haha

 

[wahkao3]

good thread

too bad private equity is not for me. doesnt have the frame work and regulation i want. i still like public equity

 

[bei_ge_wang]

Anyway, my hunch is that you are related to this startup? Haha

hi platopus, i am the founder of the project. hoping to gather some support from Money Mind bros..

wouldn't mind some feedback as well (constructive ones of cos)..

 

[platopus]

Well, after reading through your whole writeup, how the 50k will be used etc.

The first thing a potential investor will ask is... so whats in it for me? Why should i pledge money for your project? Your writeup dont project a win-win situation for someone who might be interested

 

[bei_ge_wang]

platopus, yes exactly what i had in mind as well..

i initially wanted to give a life-long $1000 rebate per deal for initial investors of >$1000 donations..

however Pozible administrators refused to let it go through.. they said projects cannot offer equity stake or cash rebates.. hence as a service provider, my reward offerings are very limited..

 

[CookieMonsta88]

platopus, yes exactly what i had in mind as well..

i initially wanted to give a life-long $1000 rebate per deal for initial investors of >$1000 donations..

however Pozible administrators refused to let it go through.. they said projects cannot offer equity stake or cash rebates.. hence as a service provider, my reward offerings are very limited..

Just 1 question though, how do u intend to offer leverage to customers as stated in ur description? Are u counter party market making or brokering only?

 

[bei_ge_wang]

CookieMonsta88, you mean this?

"Also, starting off we will be offering only full-cash purchase/acquisitions. Over the 2nd year, it is hoped that we can go into semi-cash semi-bond based purchase where acquirers can pay a smaller purchase price upfront which will enable them to take on bigger purchases."

pure brokering only.

provide the 'matchmaking' service, while keeping the exchange as fair and as transparent as possible through the use of 3rd party auditors who will have to vouch for the accuracy of financial documents exchanged.

i believe many accounting firms will be keen on collab. same goes for existing venture capitals and PE funds. this is because i have noticed they are very very VERY niche in what they are looking for (eg, marine sector, green tech, transport), as such i can work on the economies of scale and meet the needs of very different target segments together.

 

[CookieMonsta88]

CookieMonsta88, you mean this?

"Also, starting off we will be offering only full-cash purchase/acquisitions. Over the 2nd year, it is hoped that we can go into semi-cash semi-bond based purchase where acquirers can pay a smaller purchase price upfront which will enable them to take on bigger purchases."

pure brokering only.

provide the 'matchmaking' service, while keeping the exchange as fair and as transparent as possible through the use of 3rd party auditors who will have to vouch for the accuracy of financial documents exchanged.

i believe many accounting firms will be keen on collab. same goes for existing venture capitals and PE funds. this is because i have noticed they are very very VERY niche in what they are looking for (eg, marine sector, green tech, transport), as such i can work on the economies of scale and meet the needs of very different target segments together.

OK, so something on the risk side, what happens if ur customer's stock is worth nothing coz of a black swan event and the bond is also worthless after the default and the customer has a negative balance, is it going to come off investor's capital? Either that or I have misunderstood abt semi cash semi bond purchase, which u need to correct me on this

 

[Shiny Things]

M&A Private Equity Brokering by Chew Kiat Yong

What you all think?

So here's a question: what are you actually trying to achieve? Are you trying to draft a Singaporean version of Y Combinator's "Series AA" standard funding docs? If so, I think that's a great aim, but you need to tighten your scope a bit. Are you trying to launch a mini-M&A boutique - in which case I feel like a Pozible is the wrong way to go about raising funding? I think there's a good idea here, but it needs to be fleshed out a little more and the scope needs to be more specific.

Also I'm just guessing here, but I feel like $50k's not going to be enough. $25k isn't going to get you a lot of time with lawyers, and your "assistant" is not going to work for $1500 a month if they know what they're worth: that sort of M&A deal generation is a VP- or director-level role at an i-bank.

 

[limster]

If i understand correctly, you will engage a lawyer after raising the money.

* Does that meaning you have not got a black and white legal opinion whether your scheme is (1) legal or (2) is a regulated activity / need licence etc?

* When you say that the legal fees are $25,000. Is this your own guess or do you have an actual quotation from a law firm that the fees will NOT exceed $25,000.

* $1,500 salary for an assistant and $18k total in a year? What educational qualifications and experience are you looking at? $18k a year for someone in the finance line (clerks in finance line earn more than say clerks in a hardware store). Are you serious?

* Finally, I cannot find any info on how many M&A deals you have brokered or advised on in the past and the details (eg: company names). How many years of M&A experience do you have?

 

[wondrdoggie]

Hi TS,

I am a private equity investor both locally and internationally. I also have my own seed venture fund. Just some friendly comments if you are trying to set up a venture fund or looking to invest in one.

You need substantial track record, that you are able to hunt, prospect and evaluate/value companies. In addition, most startups or companies looking for funding worth their salt would want to know ways which you can strategically help them. Not just give them money. So you will need a team of seasoned professionals or ex-entrepreneurs as your advisory board.

There are already many such funds out there with established mgt teams, track record, govt dollar for dollar matching (which essentially double your investment) and cost structure. There is a mgt fee, plus usually a 20% carry when a high water mark is reached upon exit of an investment. Investment is usually at a minimum of 100k, with some asking for at least 200k. Your 50k proposal seems to be all fees, where is the amt slotted for actual investments?

Depending on which stage your fund invest in, your time to exit can be as short as 3 years to at least 10 years or more. That means money is tied up for that amt of time. You cannot take the money out. And success rate is low at the seed round ($50-100k), you hope to get 1 winner among say 10 companies you invest in. But getting into a company at seed round means you picked up shares at very cheap rates. At the other end of the spectrum, the silverlakes of the world typically gives 15-18% pa, but time frame is 12-15 years and min investment is 100k to 250k usd depending on which platform you enter with.

So I would say PE is not for everyone. Your risk profile and appetite must be very aggressive. And you really need to understand how startups operate. Without some hands on experiences, I would suggest choosing established funds to leverage in their expertise and track record. Going for a boutique venture without track record is very risky.

 

[bei_ge_wang]

hi wondrdoggie, nope my biz proposal is not for venture fund.. its simply a service whereby i link 'fund demanders' to 'fund suppliers'..

yes indeed, track record is an issue..

well it seems currently those successful M&A advisors are too well-paid that they see no point in taking on this industry pioneering move..

but thank you for your lengthy response, i appreciate your kind advise..

 

[bei_ge_wang]

limster, apologies for delay in reply.. was caught up with alot of work stuff..

legality-wise, i have checked with MAS, they are unable/unwilling to provide a definitive response.. likely due to there being no such prior businesses of such to date..

for legal fees, it is my own guess but have been liaising with a certain 'budget' law firm's corporate law partner on this.

for staffing costs, yeah definitely $1.5k a month is crazy low. i understand, even fresh poly grad is at about $1.8k a month market rate. but for purposes of the business proposal, got to peg it low.. this is due to the amount raised, very hard to hit the funding target even at current $50k level.. as you can see, not even $1 is raised as of now.. if not 100% raised, no funding will be released at all.. hence i am just keeping my funding target as realistically low as possible..

 

[bei_ge_wang]

hi shiny things, i intended on equity stake (or lifelong rebate on deal fees) for donors of >$1000..

but the admin team did not allow for such incentives. hence as a service-based business, my options are rather limited..

 

[bei_ge_wang]

CookieMonsta88, black swan events will not affect (as much) of the sellers' company value.. this is because they will mostly be smaller companies and unlisted firms..

hence it will all be based on their book-value.. black swan events will affect (at most) how much premium (in terms of P/E ratio) they can try to bargain for..

as a broker, i do not take on risk as i mainly just link both sides up.. both sides have to do their due diligence.. of course i will provide a third party auditor to guarantee the accuracy of their financial books.. in which case, the auditor has to stand by his judgement of the financials..

this goes the same for semi-bond financed acquisitions.. nobody knows what tomorrow brings, the acquired company's owners have to determine for themselves if the acquiror has the means to stay economically viable in the next X-years to come..