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Case Study
Management Buyout
A director with a controlling interest in a highly successful service industry company operating over 50 years was seeking to retire and negotiated a Management Buyout with 3 fellow directors. Bank facilities to the business in excess of $2.0 million; secured by Registered 1st Mortgages over all directors’ homes and a Charge over the company assets.
Funding was required to payout the bank, address entitlements to the retiring director, additional working capital to fund expansion by the new generation management and purchase the retiring director’s equity in the business. The existing banker was reluctant to provide any additional funding to the business.
The business had a turnover in excess of $40 million; solution was a debtor finance facility to convert 80% of its M$3.5 million trade debtors into working capital which paid out the bank, funded entitlements to the retiring director and provided additional working capital.
The remaining director’s homes when released from securing the bank facilities were refinanced to fund the buyout of the retiring director’s equity in the business.
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Case Study
Gap Analysis
A highly profitable expanding business established over 6 years with a turnover in excess of $7.0M was experiencing liquidity restraints; caused by the gap between payment for supply and receipt of payment from its customers. The business was a wholesale distributor and importer, which had to give credit to make sales and as an importer pay COD to its overseas suppliers. The gap was primarily funded by shareholders funds and bank overdraft both of which had finite limits. The bank facilities being limited to the value of the director’s home!
The gap was a major draw on working capital and any increase in the number of days increased the impact. Additionally, as the business expanded, the amount capital to fund the gap also increased, straining capital demands still further; alternative facilities were need to fund the growth.
Securities supporting the existing bank’s facilities were renegotiated; a Debtor Finance facility for $800,000 was established with a non bank lender (at overdraft competitive rates) plus a trade finance facility for $400,000. The benefit of these arrangements was the retention of the existing bank facilities, the Debtor finance got cash out of its debtor ledger and the trade finance funded purchases out of China
The prudent application of debtor finance and trade finance virtually funded the gap; freeing capital tired up in stock and debtors to finance the expansion.
Case Study
Company Merger And Acquisition
Two highly successful service industry companies, operating since the early 1980’s established a joint venture in the mid 1990’s. Each company was headquartered in different state capital cities with their own local and international connections. The joint venture offered, significant enhancement in national and international presence, complimentary skills, shared services, economies of scale and bulk purchasing discounts.
Each business continued into the joint venture with individual accounting systems and separate banking accommodation. Neither of the joint venturer’s banks were prepared to fund the total accommodation of the joint venture and were wary of providing increases to individual facilities because of the presence of the other bank.
The joint venture experienced dynamic growth, however, the success created its own difficulties, primarily in funding working capital. While one member of the joint venture was dedicated to the core business the other assertively developed a “collage” of separate business. While these businesses were successful and most were complimentary to the core activity, they impinged on the management, administrative and financial resources of the joint venture. Furthermore, many of these businesses had partners or shareholders not related to the joint venture; this created uncertainty with the banking relationship in respect to the application of funds and securities; effectively restricted funding to the joint venture.
The directors resolved that the interests of the joint venture would be best served by merging into one company focused on the core activity. The annual turnover of the individual businesses was in the vicinity of $40m each giving a combined turnover in excess of $80m per annum. Structure and systems were established to do so and a program commenced for the divestment of non core business activities.
Financial facilities were sought for the total accommodation of the new entity. While progressing towards the targeted structure the process had not been fully affected. Several banks were approached, however, the current position of the merger was not considered “bank ready”; the banks expressed interest in funding when the merger was fully achieved.
Approval was negotiated from an investment bank, which provided a current asset accommodation of $6,000,000 at bank overdraft comparative interest rates, funding to 80% of eligible accounts receivable. An equity contribution from a Venture Capitalist of $4,000,000 and a Commercial Property Loan of $2,600,000. The funds were used to retire existing bank debt and provide working capital for business development and acquisitions.