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ACQUISITION SAMPLES

 

The following three sample acquisitions will give the recipient a better understanding of the type of company, size of company, and the deal structure used in a target acquisition.  Every deal is different.  The Leveraged Buy-Out, the Partial Buy-Out, and the Seller Financed Buy-Out are just a few of the many creative options available to the parties to accomplish their acquisition objectives.  

 
 

ACQUISITION A - Leveraged Buy Out

‘Company A’ is the largest cabinet and counter fabrication company in a 5-state region.  Last fiscal year the company showed gross revenues of $8.2MM dollars and EBITDA (earnings) of $1.2MM dollars.  Both sales and earnings have been steadily growing for over 10 years.  There are multiple levels of management and the current owners are willing to stay on for a period of 1-2 years after the sale.  The company’s balance sheet shows over $2.8MM dollars in tangible assets, inventory, and receivables, all of which are included in the acquisition.

Venture Advocates proposes the following leveraged buy-out structure:

- Acquisition Value of $4,800,000.
- Sale includes $600,000 A/R and $0 A/P.
- Sale includes $2,200,000 tangible assets (at Fair Market Value).
- Conventional Lender will loan $1,960,000, collateralized by hard assets, A/R & Inventory (70% LTV), with 10-year amortization and 6.5% interest. (Loan payment = $267,065/yr)
- Seller will provide $2,000,000 owner financing in a subordinate position to the conventional lender, with 10-year amortization, 7% interest. (Loan payment = $278,660/yr)
- Venture Advocates raises $840,000 for remaining down payment through Investor loans, interest only payments amortized over 10 years, 12% interest, with a final balloon payment at 5 years. (Loan payment = $100,800/yr)

The company’s annual earnings before debt service are $1,200,000.  The annual debt service covering loans from the lender, the seller, and the Investors will be $646,525.  Therefore, after debt profits will be $553,475


ACQUISITION B - Partial Buy-Out

‘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.


ACQUISITION C - Seller Financed Buy-Out

‘Company C’ is an online eCommerce/Amazon/eBay retailer.  The company has been in business for 5 years.  It employees 3 full-time employees and few part-time contractors.  The seller only works about 20 hours per week.  Revenues have increased sharply, with last year’s revenues exceeding $2,200,000, and showing earnings of about $300,000.  

The sellers will be approached with the following leveraged buy-out structure:  

- Acquisition Value of $1,000,000.
- Sale includes ~$120,000 at cost inventory.
- Seller will retain 20% equity position in new company.
- Seller will provide $600,000 owner financing with 8-year amortization, 7% interest. ($98,160/yr)
- Venture Advocates raises $200,000 for the remaining 80% equity through investors.

The company’s annual earnings before debt service are about $300,000.  In this case, the seller is both a lender and shareholder.  Other investors invest $200,000 for the remaining 80% equity.  The annual debt service covering the seller loan will be $98,160.  Therefore, after debt profits will be approximately $200,000.