Welcome to this issue of Capital Ideas, our
newsletter dedicated to business selling, business buying and
financial resources for mid-market companies.
A Once In a Lifetime Opportunity
By Roy Graham, Managing Director
San Antonio/Austin Office, Corporate Finance Associates
Entrepreneurs prepare extensively over the years as they build their businesses, but many fail to plan for an exit. In our last issue of CAPITAL IDEAS for Private Business we discussed Successfully Executing the Optimal Business Exit Strategy. In this issue, we will look at an area that many business owners neglect and that may be the most important part of the business transaction: life-after-business. In fact, during the current troublesome economic and tax environment, never before has it been so important for entrepreneurs to engage world-class wealth planning professionals prior to a business sale as part of their final exit plan.
Timing is Everything – Transitioning to Your-Money-Inc.
Comprehensive personal wealth planning is rarely considered before the business transaction. The fact is, the sale of a business will most likely be the largest liquidity event a family will ever experience. Additionally, there can be no small mistakes in the wealth management plan because once a deal is finalized, it cannot be undone.
In reality, when entrepreneurs sell their company they are really just transitioning from their current business (say, Smith Widget Co.) to another business, which we will call Your-Money-Inc. This new company will have a completely new mission and will need to be guided through an entirely new set of challenges... Read more »
Community Banks May be the Answer
By Peter B. Ventre, CPA, CFA, Managing Partner
Portland, Maine Office, Corporate Finance Associates
It's no secret banks across the country have tightened their lending standards, and in many cases actually reduced the size of their commercial lending portfolios. Over the last eighteen months, many business owners have found their banks unwilling to support them beyond their present lending level, regardless of their strong lending history, current condition, or the length of the relationship. In some cases, businesses in good standing with their bank, but in an out-of-favor industry have been shown the door at renewal time despite meeting all loan covenants and terms. This has been especially prevalent with the largest national lenders, banks and finance companies alike. Many frustrated business owners have simply not been able to access credit for basic working capital or the growth opportunities so desperately needed to reverse the downward economy.
As banks recognize that the economy is slowly recovering, some are beginning to make new commercial loans. While capital for senior debt financing is once again beginning to flow, it does so within a new set of realities: less leverage, more collateral required, stricter covenants and higher pricing spreads. This new environment requires borrowers to find collaborative ways to work with the few active, albeit cautious lenders.
As little as two years ago, business owners had a myriad of options for financing their businesses and their facilities. Banks of all sizes, insurance companies, and Commercial Mortgage Backed Securities lenders were eager to take positions on a variety of businesses and properties. Now with larger than ever non-performing loans and their associated capital impairment, business and commercial property owners could be led to the conclusion that capital is simply not available... Read more »
Situation: Global AgriSystem Private Limited, is among India's largest agribusiness firms focusing on agriculture and the food sector. They retained CFA India to assist them with raising capital to expand their business. Based on the capital expenditure nature of the business model, the initial plan called for a substantial influx of capital which would have lead to significant dilution.
Solution: CFA India conducted detailed management meetings to understand their growth strategy and use of funds. They ultimately suggested recasting financials and suggested building in a mix of capex and lease models for their procurement and distribution centers. This strategy reduced Global AgriSystem's funding requirements dramatically, moderated risk and stabilized the business model, making the company an attractive investment opportunity for Private Equity Groups. Within a six week timeframe the funding requirements were met.
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