Wed | Oct 18, 2017

Dylan Coke | Preparing to access the capital markets - Nobody becomes an Olympic athlete overnight

Published:Wednesday | April 12, 2017 | 12:00 AM
Dylan Coke
Jamaica’s Usain Bolt celebrates winning the gold in the men’s 200-metre final during 2008 Olympics in Beijing, China, on Wednesday, August 20, 2008.
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Forget the antics at the starter's block, the cheeky glance over the shoulder as he strides past the competition, and the chest thumping as he crosses the finish line, Usain Bolt makes sprinting look easy, but he did not become a legend overnight.

There was a substantial investment in planning and execution that led to that success. And although he runs races by himself, his success is also a team effort, relying on the support of many talented persons.

Like Bolt preparing to dominate the competition, accessing the capital markets requires careful preparation. So how do you prepare your company to access the capital markets?

The first step is to put together a team to manage your bid for corporate 'glory'. Capital markets transactions involve a fair investment of effort and in order manage the process efficiently, it makes sense to create a team to manage the process.

That team should include the persons most familiar with the company's finances your head of accounts or finance; its legal and governance affairs your company secretary or in-house counsel; and the person most able to make things happen - the chief executive officer or someone with enough seniority to make big decisions.

Once the team is set up, their first job will be to make sure the company can stand the scrutiny of the investment bankers who will arrange or manage the transaction, and the investors who will invest in the transaction. In doing this, the team should ask themselves what an investor would want to see when looking at their company.

The first answer to that question is that an investor will want to see that the company is being prudently and profitably run, and that is likely to continue along that track in the future.

 

Review financial history

 

One way for the investor to make that assessment is to review the company's financial statements and financial projections. The team should therefore ensure that the company has up-to-date financials - both audited annual numbers and unaudited quarterly numbers along with credible financial projections.

Before investing, an investor will also want to understand the non-financial side of the company, that is, its history, products and services, competitive strengths and weaknesses, and its managers and shareholders.

This non-financial information can be set out in a company profile, which can be a modified business plan or a document created specifically for the purpose. You may want to append to that document other documents that show that the company has been properly created and is being prudently run, including its Articles of Incorporation, Certificate of Incorporation and Tax Compliance Certificate.

Be prepared to pitch or sell your company. Company owners often make the mistake of assuming that because they've put their heart and soul into building a business, it will be obvious that money invested in that company's stocks and bonds, etc, will be prudently managed.

 

Convince your investors

 

Bear in mind that investors will not know the company as well as you do and they'll need to be convinced that their capital will be preserved and an attractive return generated.

You will have realised by now that there is a strong element of investor persuasion in the fundraising process. That in mind, your company profile document and your investor presentations should not only tell the story of the company, but it should also say what makes the company special. What unusual advantage does your company have? What does it do differently?

A famous coach decides to work with a young athlete because they see something special in them that set them apart from the others. Similarly, investors will need to be convinced that your company is special.

Convincing investors that your company is the Usain Bolt of furniture factories or hair weave manufacturing is hard enough as it is. It's even harder if you have an unusual or complicated business model or if they have never heard of you before. You should therefore build your brand and create awareness or understanding around your business long before an investor ever looks at it. Down the line, it may make having a conversation with an investor much easier.

Having taken these preparatory steps, it's time to put together an external transaction team which will work with your internal team to execute your transaction.

Start by spending time researching which investment houses have done transactions of the kind you're contemplating. Once you have retained an investment banker, that person may recommend a firm of attorneys with experience in executing capital markets transactions who'll take charge of due diligence, drafting transaction documents and making regulatory filings. They may also recommend a registrar, trustee and accountant, if necessary.

Once the transaction has successfully closed, feel free to do the 'lightning bolt' pose every chance you get. You'll have earned it!

- Dylan Coke is vice-president, capital markets at Scotia Investments Jamaica Limited. dylan.coke@scotiabank.com