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.
"developing financial strategies to help
corporates & individuals achieve financial goals….”
Company merger and
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
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.
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
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.
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