Growing a business through acquisition rather than organically often mitigates several risks in the eyes of financial institutions. Combining two companies allows the acquirer to purchase existing products, customers, or proprietary property. The acquirer can also increase financial performance by eliminating duplicate expenses between the two companies, resulting in immediate cash flow enhancement and the ability to attract more favorable financing. Ultimately, these synergies and growth opportunities are critical to finding attractive financing.
Tunstall guides its clients in discussions with acquisition targets and advises on transaction points such as purchase price and structure. Once an agreement is reached, Tunstall will work with the client to develop a comprehensive business plan, detailing the acquisition target, the synergies and the potential earnings arbitrage. Tunstall then presents the business plan to the institutional capital markets to help clients secure the capital required to fund the transaction. Tunstall has assisted many companies in acquiring significantly larger competitors.
Natural Gas Company
The Company approached Tunstall looking to raise $20 million to grow organically into new markets and expand its customer base.
Realizing that an acquisition strategy would allow the Company to expand more rapidly and would provide access to more favorable capital, Tunstall worked with management to identify and implement an acquisition strategy. Tunstall then secured a $75 million senior debt facility to finance the acquisitions.
Building on this new model, management then identified a strategic acquisition that was already servicing a growing segment of the market. Tunstall helped management secure a letter of intent to buy the company. Complied in the business plan, this $8 million in revenue and $500,000 in net income Company raised $22 million of growth and acquisition capital, maintained control, as well as the ability to earnback substantial equity based on performance.
The acquisition strategy allowed the Company to expand more rapidly and secure financing at much more favorable terms than what was available through organic expansion.
Industrial Coatings Manufacturer
The Company was seeking to acquire a manufacturer of complementary coatings that allowed for expansion into additional growth markets, however they had no internal capital to fund the purchase.
Tunstall assisted the Company in developing purchase terms and identifying potential synergies and duplicative costs. The Company acquired the manufacturer at five times the price of its historical earnings. However, by identifying synergies in a pro-forma financial summary, Tunstall demonstrated that the combined earnings of the two companies after eliminating duplicate costs was enough to support a senior debt financing of the entire transaction.
By identifying the synergies in its business plan, the Company was able to complete the acquisition with only external, non-dilutive capital.