How to prepare a group of companies for investment

Mainstream

Attracting an investor to an international group of companies is not just a multiplier negotiation. This is the engineering preparation of the asset for sale.

The question is not how much a business is worth on paper. The main question is whether it can be bought without legal risks, tax consequences and structural chaos.

The investor doesn't buy turnover. The investor buys control, a clear history, and a predictable future.

The preparation for the transaction begins with three checks:

Does the group have a clear and transparent ownership structure?Does the key assets and cash flows secure?Does the structure comply with compliance, tax law and investment logic?

If these three issues are not resolved before Due Diligence, the company either loses its valuation, or disrupts the transaction, or raises money on unfavorable terms.

When Pre-Sales Preparation is Necessary

An international group structure before the investor enters is necessary if:

• The owner plans to sell the share to a strategic or financial investor
• Several rounds of investments are being prepared
• assets are scattered across jurisdictions without a single logic
• The group has “technical” companies, nominee shareholders or outdated offshore companies.
• Investor insists on a "clean" target company (SPV/HoldCo)
• We need to allocate non-core assets
• Convert personal ownership into corporate ownership
• Options programs are planned for management
• It is necessary to protect assets from claims of third parties
• The transaction is international (cross-jurisdictional)

The mistake most owners make

Many founders start with the question:

What kind of multiplier can we get?

That's the wrong first question.

The right question is:

What does my group look like through the eyes of an investor and what prevents him from giving money?

Sometimes the best result is not a price increase, but the removal of legal risks. Sometimes, the allocation of assets. Sometimes, a change in the jurisdiction of the holding. Sometimes it is debt restructuring. Sometimes it’s just putting things in order in corporate documents over the past five years.

Attracting investment does not require presentation, but structural surgery.

Step 1. Inventory of assets and liabilities

The first thing to do is to understand what the group actually owns and how it is designed.

Key questions:

• Who is the legal owner of each company
• What each company owns (real estate, IP, contracts, licenses)
• Are there loan agreements between the group companies?
• how cash flows move
• Who is the beneficial owner
• What obligations are recorded for each company
• Whether there are hidden or potential liabilities
• assets used in operations but owned by the owner

If the ownership structure doesn’t match the economic reality, the investor sees it as a red flag. This reduces the valuation or leads to a rejection of the transaction.

Step 2. Clearing the ownership structure

Investors need a simple, flat and logical structure.

Typical problems that need to be addressed:

• “Matresh” structures with unnecessary intermediate companies
• "sleeper" companies without activity
• Personal ownership of assets instead of corporate ownership
• nominee shareholders and directors
• offshores without economic sense
• Companies in jurisdictions that the investor will not accept for compliance reasons
• cross-possession
• Lack of holding company (HoldCo)

The aim is to create a structure where the consolidation centre (usually an EU holding company or other acceptable jurisdiction) is clearly defined, under which the operating subsidiaries are located.

Step 3. Check legal history

The investor will not check the current state, but the entire history of the business.

It is necessary to identify and correct in advance:

• creation of companies with violations
• Absence of minutes of meetings and shareholder decisions
• mishandling
• Lack of consent to major transactions
• violations in the issuance of shares or increase in the authorized capital
• Absence or incorrect execution of corporate contracts
• Interested transactions that are not properly executed
• Using loans from related persons without documentation

Gaps in corporate history are one of the main reasons for downward revisions. Any unsolved question from the past turns into a bargaining process at the Due Diligence stage.

Step 4. Check financial flows and transfer pricing

Investors look not only at the revenue but also at how the money moves within the group.

We need to make sure that:

• Cash flows are transparent and understandable
• Intragroup payments have a market justification (transfer pricing)
• No unjustified concentration of profits in low-tax jurisdictions
• Royalties, dividends, interest and fees for services are executed by contracts
• There is no mixing of personal and corporate accounts
• Cash pooling is structured correctly
• All intragroup loans are documented and serviced

Unstructured financial flows create tax risks for the future investor. No one wants to buy a business with potential additional accruals from past periods.

Step 5. Protecting key assets

An investor buys a business for assets that generate income.

The following shall be checked:

• intellectual property (trademarks, patents, software, know-how)
• property
• equipment
• domain names
• licenses and permits
• key contracts
• databases and customer lists
• Exclusive distribution or agency rights

It is important that assets:

• belonged to the group companies, not personally to the owners or third parties
• They were properly registered and registered.
• have not been encumbered by the rights of third parties without the investor’s knowledge
• They were not at risk of withdrawal.
• They were not the subject of unfinished disputes.

If a key patent is written to the founder personally and the company is running the business, it is a problem that needs to be solved before the transaction, not explained to the investor.

Step 6. Establish or Restructure a Holding Company

Choosing a jurisdiction for a holding company is a strategic decision.

Selection criteria:

• Legal certainty and predictability
• Presence of Double Taxation Agreements
• Membership in the Parent-Subsidiary Directive, Interest and Royalties Directive
• Absence of black or grey lists
• Possibility of structuring option programs
• Protection of minority investors
• clear-cut entry and exit mode
• Investor-friendly legal system

EU jurisdictions are often used where the law is clear to the international investor and judicial protection works predictably.

The holding should become not just a layer, but a working instrument of the transaction: Investor entry, rights protection, profit distribution and future exit.

Step 7. Preparation of a corporate contract and transaction structure

It is important for an investor to understand not only what he is buying, but also how he will manage it.

At this stage, the following are formed:

• type of transaction (entry into capital, convertible loan, option)
• Corporate Agreement (shareholders’ agreement)
• Protective mechanisms (veto rights, tag-along, drag-along)
• decision-making
• board
• Conditions of exit from the investment (exit)
• fractionalization
• dividend-sharing
• Mechanisms for resolving deadlock situations (deadlock)
• applicable law and dispute resolution

The structure of the transaction should be thought out not for the close of the round, but for the entire investment cycle - from entry to exit.

Step 8. Check compliance and sanctions risks

For an international investor, compliance is not a formality, but a matter of business existence.

Prior to due diligence, it is necessary to:

• Check the structure for persons and companies under sanctions
• Ensure that there are no sanctioned jurisdictions
• Check the banks through which payments are made
• Evaluate the risks of currency regulation
• Ensure the legality of all export and import operations
• Check if all necessary licenses are available
• Ensure that there are no violations of anti-corruption legislation
• Checking Contractors and Supply Chains

Sanctions or compliance risk can kill a transaction completely, regardless of financial performance.

Step 9. Identify non-core and problem assets

The investor does not want to buy problems or unnecessary assets.

Before the transaction, it is desirable:

• Extract property not related to business
• allocate the personal assets of the owner
• Sell or close down “sleeper” companies
• Restructuring or repaying troubled debts
• settle
• Closing Old Corporate Conflicts
• identify business areas that are not part of the transaction perimeter

The net perimeter of the transaction is respect for the investor and protection of the price.

Step 10. Prepare documents for Due Diligence

The investor will request a large amount of documents. Their systematization in advance saves time and creates the impression of professional management.

Preparation should be made for:

• Corporate documents (registers, protocols, certificates)
• Financial statements (audited, if possible)
• Key commercial contracts
• Asset documents (IP, real estate, equipment)
• Employment contracts with key employees
• trial-related information
• tax history and conclusions
• licenses and permits
• group-contracts
• description of ownership structure and beneficiaries

The chaos in documents makes the investor think that the business is run in the same way as the paper is stored.

How the investor sees the structure: risk-sheet

Common mistakes in preparing a group for an investment

1. Postpone training until due diligence

The investor will not wait for the owner to clean up. He will either go away or discount the price.

2. Not to separate personal and corporate

Mixed assets and accounts are the first thing that scares away an institutional investor.

3. Ignore the “Technical” Companies

Every company in the structure has to make sense. Extra entities create questions.

4. Saving on audits

Financial statements without auditing are a signal of high risk.

5. Hide the problems

The investor will find it anyway. It is better to disclose yourself with an explanation and a plan of solution.

6. Don't think about leaving the investor

The investor comes in to get out. If the structure does not allow a beautiful exit, the investor will not enter.

7. Not to fix agreements between partners

Gentlemen's agreements collapse when a third party enters. Everything must be recorded in the Shareholders’ Agreement.

8. Not to check the sanctions risks

A single blocked payment can paralyze the entire investment transaction.

Owner's checklist

Before starting negotiations with an investor, you need to answer 15 questions:

1. Who is the beneficial owner of each company?
2. Are assets on the balance sheet of the companies?
3. Are there any corporate documents for the entire period of existence?
4. Are all transactions recorded in the documents?
5. Are there overdue obligations?
6. Does the company’s structure comply with the investment logic?
7. Can the cash flow be explained?
8. Is there any transfer pricing and documentation?
9. Is intellectual property protected?
10. Are there any sanctions or compliance risks?
11. Who else has the right to do business?
12. Are non-core assets allocated?
13. Are there audited accounts?
14. Is the draft corporate agreement ready?
15. How can an investor get out of business?

What a strong investment preparation strategy looks like

A strong strategy usually includes five levels:

1. Legal Audit & Clean-Up

Asset inventory, structure cleaning, corporate history correction, registration of missing documents.

2. Structural Optimization

Creation or restructuring of the holding, choice of jurisdiction, construction of a logical system of ownership.

3. Asset Protection & IP Strategy

Registration of rights to assets, protection of intellectual property, allocation of non-core property.

4. Financial & Tax Housekeeping

Putting in order intragroup flows, transfer pricing, tax transparency, audit.

5. Deal Structuring

Definition of the type of transaction, preparation of shareholders’ agreement, negotiation strategy, exit plan.

Without the fifth level, the first four may not work. Investors should not only see the net asset, but also understand the rules of the game.

FAQ

Can you attract an investor if the assets are recorded on different individuals?

Technically, yes. But this creates risks for the investor and reduces the valuation. It is recommended to consolidate ownership in the corporate structure before the start of Due Diligence.

Which jurisdiction for the holding is preferred by investors?

Usually, jurisdictions with clear corporate law, an effective judicial system, and a wide network of tax treaties. Often these are EU countries.

How long does it take to prepare the group for investment?

Depends on the complexity. “Cosmetic” preparation can take 1-2 months. Full restructuring with the change of jurisdictions and registration of assets – from 6 to 12 months or more.

Can I attract an investor without audited reporting?

It's possible, but harder. The lack of audit is often interpreted as an increased risk, leading to a lower multiplier or additional conditions.

What if there are “sleeper” companies in the structure?

Liquidate or sell before the transaction. Every extra company is a matter of due diligence and potential risk.

Should I change the offshore company to a European holding company?

Not always, but the trend is obvious. An offshore without economic content raises questions among banks, investors and regulators. Often, a change in jurisdiction increases the attractiveness of an asset.

Can you hide some of the problems from the investor?

Don't be. Hidden problems discovered by an investor undermine trust and often lead to a breakdown of a transaction. It is better to solve any problem yourself - with an explanation and a plan for solving it.

More importantly: Financial reporting or legal purity?

Both. But legal risks are often underestimated. The investor can accept the volatility of finances. Legal risk aversion is more common.

Related services

International Corporate Structuring & Holding Companies in Europe M&A and Private Equity Transactions Cross-Border Tax Planning & Transfer Pricing Commercial Contracts & Shareholders’ Agreements Asset Protection & Wealth Planning International Regulatory Risk & Compliance

Related material

How to choose a jurisdiction for a holding company in Europe Shareholders’ agreement: Key conditions for the protection of due diligence investors: What Investor Checks and How to Prepare Transfer Pricing in International Groups How to Protect Intellectual Property in a Group of Companies Planning from the first day of the Sanctions Compliance for International Business

Conclusion

Preparing an international group to attract an investor requires not cosmetic improvements, but a restructuring of the business.

A strong position is based on a transparent ownership structure, a clean corporate history, protected assets, clear financial flows and a professionally prepared transaction structure.

In negotiations with investors, the winner is not the one who draws beautiful forecasts. The winner is the one who offers the investor a clean, understandable and protected asset that can be entered without fear and from which you can exit with profit.