‘Company B’ is an industrial equipment sales, service, and rental company. The company has over 2000 customers predominantly located in Colorado, Utah, Wyoming, and New Mexico. For 12 years, the company has shown consistent grown. Last year the company had revenues of $8MM and EBITDA (earnings) of $1.6MM. The fair market value of the company’s assets is about $500,000. The value of the inventory at cost is approximately $2.2MM. The current owner approached us because although he has a high net-worth, he has no liquidity. Almost all of his net-worth is tied up in the value of this one company. He is 55 years old and wants to remain as a shareholder and general manager for the company.
VENTURE ADVOCATES HAS PROPOSED THE FOLLOWING LEVERAGED BUY-OUT STRUCTURE:
- Venture Advocates completes partial buy-out of 51% of the stock of the company, and assumes majority control position.
- Seller sells 51% of the stock for $3,200,000.
- Conventional Lender will loan $1,620,000, collateralized by hard assets of $500,000 and inventory of $2.2MM. Loan is 10-year amortization @ 8% interest. (Loan payments = $235,861/yr)
- Venture Advocates raises remaining $780,000 for remaining down payment with Investor loans amortized over 10 years with 10% interest. (Loan payments = $123,693/yr)
The company’s annual earnings before debt service are $1,600,000. Of the profit, Venture Advocates will receive $816,000 (51%). The annual debt service covering loans from the lender and the Investors will be $359,554. Therefore, Venture Advocates’ after debt profits will be $456,446.