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Case Study: Financing

Stonegate was retained by an individual to help negotiate and finance the acquisition of a company that sold movable shelving to retailers. The sales and EBITDA of the company were approximately $12MM and $3MM, respectively. The company’s assets consisted dominantly of receivables, making the financing for the acquisition largely based on cash flow lending as well as a combination of equity and mezzanine financing.

The acquisition was further complicated because of a dispute between the two family member shareholders of the selling company. This dispute made it difficult to communicate with the company and to finalize a deal.

Many of Stonegate’s projects require dealing with conflicts and the emotions of various constituencies. This project is a clear example of such challenges. The Company being acquired was an excellent performer. The conflict on more than one instance almost caused the transaction to fall apart. Stonegate had meaningful involvement in helping the parties mediate the conflict.

Stonegate created a financing structure with 40% equity and mezzanine capital with the remaining 60% in senior bank financing.

Stonegate’s methodology in structuring a financing is what was pursued in this case; the approach is to have preliminary discussions with various sources to verify possible structures favorable to its client and to then solicit interest from various financing sources. Stonegate executed that game plan very well in this instance. Stonegate and its client presented and met with various financing sources to determine the best fit for the transaction. Stonegate negotiated and achieved for its client a 33% equity stake while the client only made a $500,000 equity investment.. The company has subsequently been very successful. It has achieved sales of well above $20 million and an EBITDA of over $ 6 million.

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