ASSET HEAVY DEAL - HOW TO BEST STRUCTURE FINANCIAL ASPECT
Currently going after an asset-heavy opportunity (~$4M in equipment and $1.5M in Property - both currently debt-free).
I want to structure the deal so that I am able to place leverage on these debt-free assets to the extent that the business's margins can support it and the cash from the financing provide as much of the acquisition price as possible.
Is this "crazy-thinking"?
If this is not a horrible idea, what should I be careful of here?
Will I most likely have to "take possession" of these assets at close and then turn around and finance them or is it possible to line up the financing prior to close?
Are there lenders that specialize in asset lending, specifically equipment and property or am I better off going to the local bank that houses the company's accounts?
I appreciate any and all comments. Happy to take the conversation off-line if needed as well [redacted]
I can't offer financing advice that is particular to your deal, but I can offer you advice from an operator's perspective. I operate a very asset-heavy business and can talk you through some of the DD items that are critical to your success. In our business many new operators underestimate the CAPEX and OPEX requirements to run a fleet. In particular, many small business owners who plan on selling their business use the last year of their ownership to take maintenance shortcuts to reduce GOE and jolt EBITDA. Let me know if you want to chat.
Mike
To your original question: asset-based loans are a much bigger pain than a cash-flow based loan (all the titling involved) and will probably garner a lower $ loan than you imagine. I only saw FLV (forced liquidation value) at my prior job so it's treated as if the lender has to sell everything on a firesale. You'll probably get 50% of 70% of the value new or something way lower than expected.
If you get a cash flow based loan, you may have covenants that include CapEx in your calculations but that provided us a lot more room and larger loan balances than any asset based loans.
(Context: worked at a PE firm that owned 7 transportation companies ranging from $5M EBITDA (and asset light) to $50M EBITDA w/ assets)
2. You cannot "posses" the assets and then finance. unless you have cash with you to first pay the seller, own the business and then finance.
3. In certain industry CapX manufacturers have a leasing program. I have done few deals where financing from the CapX company was better ($, % and amortization) than the bank.