It honestly sounds like it's not the right time to sell the business. I've done a good bit of work with companies like this and it very rarely ends with a successful sale. What we've done is try to market the positives (i'm sure there are some positives about your company otherwise it wouldn't still exist) initially. Ultimately any sophisticated buyer will discover the negatives but might buy regardless. You never really know until you try to market the business.

 

A capital raise is different to selling the firm as one is financing future operations and one is handing the firm over to a buyer, or selling a partial stake, whereby current management takes the cake.

From a sale perspective, try to understand the industry dynamics and whether or not consolidation is a need. If it isn't, it will be difficult. If it is a need, you can spin the firms geographic location, facility utilization, etc. as positives to a filtered list of different buyers based on buyer type, location, competitors, supply-chain (vertical integration needs), etc. PE funds for example love facilities that are under-managed since they're able to squeeze out a ton of value, obviously depending on the entry price; competitors love taking over competition, and hedge funds love capital stack arbitrage and distress. The firms management is key as well. How valuable is the firm without them? Are they willing to let go of assets or are they only selling as a whole? How motivated are they? It's important to study both sides of the coin to understand the landscape and dynamics that come into play.

There's always a buyer, it just depends what the management is willing to take. And a key part of that, is managing expectations.

 

I like the geographic and management spin on things. The firm owns a large chunk of land that's going to be recommissioned to a residential zone, so that's bound to raise their appeal to investors. Company also hires lots of disabled people as employees to be eligible for tax rebates from the government, so they technically make money on each employee they hire, so they've got that whole corporate social responsibility going for them.

I'll focus on that stuff. Cheers man

 

If you're doing a capital raise, just sell the land to a real estate firm. Absolutely no need for such a small firm to be dabbling across such a different product if they can't even get their own operations in line. If this is the case, maximize the heck out of that plot of land in terms of zoning limits to get the highest and best use value.

 

OK I have a great idea.

Tell everyone you are selling your clients a one time exclusive opportunity to maximize their risk adjusted returns through your expert guidance and strategic leverage.

You will add value because your due diligence has uncovered a recently restructured firm whose creditors have extended additional capital for a leaner more focused core business.

You will then take out loans against their assets and pay yourself a fat dividend before moving to Luxembourg under a newly assumed identity.

Or you could actually try to save them.

You lobby municipal politicians for tax breaks in the form of state or government bonds in exchange for job creation. Then you hedge your currency exposure through credit default swaps and selling a portion of the rights to your accounts receivables so you can pay down your debt rapidly. It's all probably quite messy and might require them to also renegotiate the structure of whatever their credit is now.

I'm not in credit or fixed income, so you'll probably go to prison if you decide on the bonus method. I think. The second way probably won't work either but if you can model it out and present it well maybe your team will be impressed.

 

You don't need to mention that at all actually. Creditors would be trying to force a liquidation by now if the company was doing that badly. The fact that they haven't suggests they don't mind absorbing the losses or there may be some remaining value for the short term they'd like to squeeze before they start the process. Or if you're an optimist, they actually think it can be restructured.

 
Best Response

A few things that I would do:

  1. Look at the shareholding structures (if under the group structure, the client owns multiple companies). See whether you can crave out bad businesses, or you can lump a few with steady cash flow with 1-2 growth potentials ("NewCo").

  2. Under the NewCo, try to talk to manage to see which areas that they are focusing on - that make senses. Are they in good businesses with good margins. In most case, client just wants money so I would rather crave out the bad business into another entity and only focus on good businesses that any reasonable buyers would take a look at.

  3. Now try to do project earnings for the next 2 years. Put a slide that show how much the company is being valued at right now, versus how much it will be in the next 2 years. For example, US$3MM in EBITDA at 10x EV/EBITDA, arriving at US$30MM in valuation; the firm will grow into US$5MM in Year 1 (at 30/5 at 6x EV/EBITDA) and US$6MM at Year 2 (at 30/6 at 5x EV/EBITDA).

  4. So in the end, it comes down to pricing. If you worry that the client will not reach the target EBITDA, you can put in earnout clauses, where any downward deviation will entitle the buyer to buy more shares at the fixed price. Assuming the company failed to turn into US$5MM in Year 1, at 10MM capital injection, instead of 10/30, 33% of the shares, now you will be entitled to 40% of the shares.

  5. Referring back to point 4, the capital injection or the purchase of existing vendor shares can come into several trenches. And it doesn't need to be direct equity. Can be done via convertible bond structure, where the investors will be guarantee, for a floor - assuming let's say 6% per year interest on principal investment and convert upon the end of 12 months.

 

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