Buy or Invest? That is the Question…

By Martin Murphy
Martin Murphy
Martin Murphy
September 10, 2014 Updated: September 10, 2014

If you are thinking of buying into a business or investing your money, then now is a good time. Many businesses are screaming out for investment because banks aren’t lending at the levels that are required. Shane Connors from Savvy.ie gives the lowdown on buying or investing in a business.

According to Mr Connors, now is a good time to invest savings or even redundancy payments and, in certain circumstances, you can even avail of tax-back payments from the Revenue Commissioners if you invest in start-ups.

“So you might physically get a refund from the Revenue, and you could use that money to directly fund the business. So from our point of view it is a very tax-efficient and a very cheap way of making an investment in a business.

“In terms of people looking to buy companies, you might have an existing business that’s got some cash and is looking to reposition slightly. It could also be looking to expand its customer base: maybe it has identified a competitor or complementary business that they like the look of and have decided to buy it rather than try to go to the customers and win them over that way. This can be a cheaper way of doing it, and you get access to their skill-sets as well,” said Connors.

For any kind of investment or business buyout, Mr Connors stressed that advice is paramount.

“The first thing I would say to anyone is that you have got to get an adviser on board—don’t try and do it all yourself. Typically what we would do is, if someone came to us and said they were thinking of investing in a certain company, we would go in and take a look at that company, we would do the due diligence, we would meet the management team, and we would come back and tell them what we thought before helping them with the legal and commercial aspect of putting the deal together,” said Connors.

“Similarly, if someone was looking to buy a business we could do a number of things there. Firstly, we could prospect for them: They could give us a brief of what they are looking for and we could source a number of potential prospects. If they see one they like we can do the due diligence, we can give them an indication of what we think the value range should be, and help them through the whole process,” explained Connors.

Buy or Invest?

“If you buy then you are going to have a majority stake—you may not be buying 100 per cent today, but it will be your intention to do that over time. However, with an investment, you might say, “Look, I’ve got 100,000 here and I want to put it into something, and you get a minority stake. A lot depends on how much you have to invest and, also, what your own fields of expertise are.”

According to Connors, investment is particularly popular at the moment mainly because banks are not exactly active in terms of lending to allow people to grow their businesses. Hence, private equity is certainly a hot area—especially in the IT space—but there are a lot of people looking to expand their businesses who don’t have access to funds, so they are looking to private investors, either bringing in one person or a number of people. 

“It’s active this year but I think it’s going to be very active next year. I think the creative approach to managing these transactions is required. Matching the guys with the skills, with the ideas, to the money guys. I think Ireland has a bad track record doing that, except for perhaps in the venture capital world. People who have tried it have probably had bad experiences. If it’s structured correctly and everything is agreed up front then it can work very well,” said Connors.

“The classic pitfall is that someone comes along and offers you money: you say that’s fine, you take the investment, but there is no chemistry, there is not an established level of trust or, perhaps, one party promises the other too much. Typically, where these things tend to fall down are when someone comes in and puts up a bit of cash, and says they are going to also do some business development but for various reasons it never happens. While the money might help grow the business a bit, it’s not maximising the potential because you have got disharmony.”

In closing, Shane Connors says: “The critical thing is that you take your time on it; you might even do it in phases, you get comfortable with the investor and you make sure you are happy and you can work together. That you trust them and they trust you. With that approach, you are a lot of the way there.”

For more information visit http://www.savvy.ie