When seeking liquidity, it is important for an owner to understand that there are multiple alternatives available, but there are several important questions that need to be asked in order to ensure that both personal and financial goals are met, such as:
• Do I truly believe in the future growth of the Company?
• Am I ready to completely cash out today given all I have invested in the Company to date?
• How much upside am I giving up by cashing out today?
• Who am I selling to, and how does it impact my management team and employees?
• Am I willing to give up operating control of the Company for partial liquidity?
Tunstall focuses on creating proposals by exploring all available liquidity options. These proposals are then reviewed with the owner, who weighs the pros and cons of each. The process allows the owner to choose what is best for the Company’s particular situation. As a result, the owner can be comfortable in the ultimate financing structure, as all viable market options have been presented.
Audio/Visual Supplier to the Hotel Industry
The owners had an offer to sell the Company for $18 million. While interested in personal liquidity, they were confident in the future growth prospects of the Company, and did not want to sacrifice long term value for a payout today. The owners came to Tunstall to help explore other options.
Tunstall received proposals from several liquidity sources, including mezzanine lenders, and minority and majority private equity firms. Confident that they could grow the Company themselves, the owners chose to take $10 million of mezzanine debt with a 12% warrant ($8 million was distributed to the owners) and recapitalized the existing $9 million senior debt.
The owners were able to weigh all available options and decide what worked best for them. They received $8 million of personal liquidity and retained 88% of the Company, which they seek to grow prior to exploring a second liquidity event.
Consumer Product Distributor
$6 million + $12 million
The owner spent years growing the Company to annual profitability of approximately $2 million, however he had reinvested all of his earnings back into the Company to satisfy the senior debt. He came to Tunstall seeking advice on his liquidity options with the goal of retaining as much equity as possible.
Tunstall helped management secure a $6 million mezzanine note, which the Company distributed tax free from its Sub S AAA account. Due to significant growth the Company paid off the balance in two and a half years. The owner then immediately took out another $12 million mezzanine loan and took a second distribution.
The owner received the liquidity he desired (twice) and maintained nearly 100% of the ownership of his business. For the owner, having the significant liquidity earlier in the Company’s life cycle improved his ability to manage the business going forward.