Asset Heavy Deal - How to best structure financial aspect
January 26, 2021
by a searcher in Tampa, FL, USA
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
from Brown University in Lafayette, CA, USA
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)
from American University in Irvine, CA, USA