The Challenge:
The company was founded in 1933 as a commercial metal fabricator and later added a hydraulic parts distribution division. A CPA purchased the company in 1986 and served as its absentee owner, promoting a longtime employee to General Manager. Eventually, the CPA decided to retire and sell the company to the General Manager, whose management style contributed to the overall success of the business. The General Manager negotiated the purchase and entertained a financing solution with his bank, including three loans: one for a $4MM stock purchase of the business, one for $600K for owner-occupied real estate, and a $500K loan for equipment.
The bank recognized that the loan request would exceed its risk tolerance. Considering the new ownership, should the company be underwritten as a start-up, management buyout, or continuing business? And how would a post-closing balance sheet be structured? It was a situation that went beyond the traditional.
The Solution:
The bank decided to minimize its exposure to risk by including Flexent as a funding partner to the $5,100,000 request. The bank provided three loans to fund the purchase. Flexent provided a $1,800,000 accounts receivable working capital facility, which was initially used to help fund the buyout. Over time, Flexent increased the working capital credit facility to $3,400,000 as a result of the company’s strong growth.
The Results:
Sales grew from $15MM to more than $24MM in the company’s first five years of new ownership. The real estate and equipment loans were paid in full, and the $4MM purchase note was reduced by amortization performance. Given the proven management and financial performance of the customer, the bank paid off Flexent and provided a $3MM traditional credit facility, recognizing the partnership as a stepping stone to the success of the company.
