Challenge: Navigating unexpected delays The Vant Group was representing a Middle Market Multi – National Company on the buy side. Our mandate was to assist this company with finding an acquisition target to diversify their cash flow.
Their criteria was pretty broad; find a cash flowing business that has the ability to grow. Our clients were pretty successful in their core business and had more than enough cash on hand to execute various size deals.
Within 5 months, we were able to find and negotiate a favorable Letter Of Intent on a service business that our clients were excited about. Although our clients had the ability to write a check (PAY CASH) for the business, it didn’t make much sense with interest rates as low as they were. Our clients decided to pursue conventional bank financing for this acquisition.
Issues we hit with Conventional Lender:
No Assets
While our clients had a solid balance sheet, the business being acquired itself did not have any real tangible assets. The banks were leery of lending on this business without significant assets being held as collateral.
Moving parent company’s business to new bank
Our clients were open to discussing some form of collateral, but before we got too far down the line, many banks also wanted our clients to move over significant assets of the parent company to the new lender. This was a deal breaker for our clients due to the size of the parent company. Any issues with the bank transfer of the parent company could severely hurt the company’s cash flow.
Approach:
Try SBA. We then decided to pursue SBA financing. On the surface, this was the ideal SBA target. The business has a strong history of cash flow that was easily verifiable against the tax returns. After 2+ months of delays, the deal was back on track.
Issue with SBA Process
SBA Citizen Requirement
One of the guarantors for the SBA loan is going to be the Multi-National Company. The company is a C-Corp with many minority shareholders who are not US Citizens. The president and CFO of the company were US citizens but they only made up 42% of the total ownership. In order for the company to act as a guarantor, the company must have over 50% ownership be US Citizens. The company needed to reorganize the shares in order to have the majority of the company have US ownership. This delayed the deal another 2+ months.
Commitment Letter
After the company restructured, we were able to get a term sheet for financing. But this took nearly a month.The deal has now been delayed more than 6 months and we are now just able to officially start the SBA process and furnish a bank commitment letter to the sellers. As anyone who has been involved with any acquisition can tell you, “Time Kills Deals”. The sellers had begun to lose any hope that these buyers would ever be to get this deal done. It was our job at The Vant Group to keep the lines of communication open between the buyer and the seller. We did everything possible to keep the sellers from backing away from the deal. And no one would have blamed the sellers from backing away at this point. While these delays were unique in nature, addressing delays is something that you may have to do on occasion as an intermediary. Being honest about progress as well as having a plan to move forward is what worked in this case.
Result:
We were finally able to close 10 months after signing the initial Letter of Intent. Both sides were happy and were glad The Vant Group was there to keep the process moving forward even if there were a few delays.