Selection Criteria
We are a B2B financial consulting service company. Our clients are businesses that need equity funding for growth initiatives, new projects or financial turnaround.
In order to earn a reputation in terms of the kind of opportunities that we bring to the investors, Apohan implements strict screening criteria in selection of business customer require private equity. Unlike bank loans, equity funding is merit based, potential bases and hence always possible. But it is not all that easy. The selection, scrutiny, due diligence, contracting and expectation norms for equity funding are the toughest.
Hence, we have designed selection criteria before bringing the small and medium enterprises (SMEs) to the investors.
Financial criteria:
The complex and rigorous merger and acquisition deals are not possible for the businesses below threshold revenue. Apohan expects a typical deal size of around INR 50 crore (7 Mn USD). The minimum deal size should be INR 10 Cr. We do not entertain companies with revenue/net worth/assets/valuation lesser than INR 25 Cr. The exception could be only those companies which can reach the label within one or two years.
See:
Threshold deal size or net worth of a potential client company of Apohan
Technical & operational criteria:
The company must have experts knowledge in the products it manufactures our services it provides. It must follow the relevant technical standards manufacturing of the product. It should have a reputation for the quality of the product it makes and it should be generating repeat orders from the customers. The manufacturing process must be compliant to well accepted industrial process standards. The company should have a history of having run the company successfully in case of a company in financial distress. The management should be capable of running all the technical functions (such as projects, requirement, manufacturing, repair and maintenance, technical support, etc) and support functions (HR, IT, administration, etc) efficiently and effectively. All the necessary technical certifications, approvals, permits for the product to be sold in the various markets. We are aware that technical and operational competencies cannot be brought to the table by the financial investors.
In nutshell, it should be a highly competent and capable management on technical, operations front.
Market criteria
Apohan makes it a criteria that the client company must be a high growth potential candidate. There should be a handsome growth of the market of the product is making. There should not be immediate threat of substitution, replacement or obsolescence. The company should have a proper contract structure with the distribution channel. The company should not be a contract manufacturer. Its brand should have at least local reputation. The management should have a wide network of clients. The company should be meeting the criteria in the client audits. The company should be able to garner a good chunk market share. The company should be able to undertake new projects, it should be able to launch new products, etc.
In nutshell, there should be use scope for growth for the company and management should be capable of making great revenues.
Integrity criteria
The management of the company should have high degree of financial ethics. There should be no record of siphoning of Corporate funds for personal reasons. So far as possible, we would prefer the companies that have experience of working with third party directors. Apohan checks the historical record of the company and also carries out reasonable reference check while selecting a client. Also, the management must be professional and amenable to equity partnership. The company should be running with modern tools & techniques, good corporate culture, and policy set-up at least on operations front.
In nutshell, there should not be any risk of malpractice, wilful misconduct, non-performance & fraud to the investors.
Offer criteria
The focus of the offer should be on a conclusive turnaround of the business for complete success of the growth initiative commissioning of the new project. The fund requirement for these activities might be substantial. It may reduce the degree of the control of the existing shareholders substantially. Apohan sees to that the company takes all the required funds without much regard to the dilution of the control as taking inadequate equity funding in order to keep control in the hands of the old shareholders may not be sufficient to complete all the planned activities and me not be able to generate the expected returns. We like to see from the business seller, especially the one in financial distress that more efforts are taken to increase the valuation of the company many times than on bargaining for a relatively small contentious value so long as the investor is going to put up all the money needed for a conclusive turnaround!
In nutshell, the conclusive growth for financial turnaround must be a a significant priority over retention of control in the eyes of the existing management.