Done Deals

L. R. Nathan Associates has completed more than $1.2 billion in financings since the firm’s founding in 1980. Proceeds have been used to fund client companies’ growth plans that were not supportable by bank debt alone, as well as to complete strategic acquisitions, management buyouts, and to recapitalize borrowers being “asked out” by their apprehensive banks. Client businesses have included asset-heavy manufacturers, as well service businesses with minimal assets but demonstrable enterprise value. The following are summaries of actual closed transactions. The names have been eliminated for confidentiality, but references are available upon request.

Unsecured “Airball” Financing:

A Long Island, N.Y company had developed a well-recognized pudding brand that ranked #2 behind Jell-O in the category of refrigerated, ready-to-eat desserts. The business experienced an operating loss in the most recent year due to a costly, failed market-penetration strategy. The situation was further complicated by the fact that there were insufficient tangible assets to cover the business’s entire$22 million funding requirement. The losses prompted the company’s New York-based bank to ask the borrower to find another home. The banker referred the company’s CFO to L. R. Nathan Associates for help. We were able to secure very attractive pricing on an $18 million asset based package that included several owner-occupied manufacturing properties. The additional $4 million unsecured “airball” was filled with a fixed rate, “last-out” tranche b instrument with no equity features from a specialzed fund, which proved to be the perfect partner for the senior secured lender. This $22 million package repaid the bank in full and provided for additional working capital.

Mezzanine Growth Financing:

A manufacturer of folding cartons for major branded consumer products companies needed to fund certain growth initiatives without adding further to senior debt leverage. The company’s customer base included Procter & Gamble, Unilever, Clorox, Colgate Palmolive and others whose growth demands could not be ignored. The company already had invested considerable capital during the preceding 18 months in its Syracuse, N.Y. & London, Ontario, Canada manufacturing plants. The bank-affiliated senior lender could go no farther, so they referred the principal shareholder to L. R. Nathan Associates. We created a private placement memorandum and analysis that made a compelling case for the transaction and, as a result, were able to generate several competing proposals from mezzanine funding sources. The resulting $12 million long-term subordinated loan provided fresh expansion capital without impairing operating capital availability.

Strategic Acquisition:

The owner of a tiny metal stamping company located in Waterbury, Connecticut fantasized about acquiring a much larger division of Owens-Illinois located nearby. The product lines were similar and the acquiring owner was a terrific operator, who felt he could improve the operations of the bigger organization. He had minimal equity to invest, other than the value of his existing business, his own track record and good industry relationships. He was referred to us by an area banker who knew him well and admired his entrepreneurial spirit. L. R. Nathan Associates handled the negotiation process with Owens-Illinois executives on his behalf. We also were able to raise financing to fully fund the cash portion of the purchase price, along with expanded working capital availability for the combined entities.

The Great American Dream:

The owners of an industrial spring manufacturer wished to retire. They would have loved to sell the business to their key managers, but they realized that the management team had only minimal capital of their own. “The Great American Dream” of employee ownership seemed beyond their reach. However, this group of four middle managers was referred to L. R. Nathan Associates by the company’s general counsel. We helped them to structure a sound Business Plan that supported the aggressive leverage of the company’s assets and market position. The resulting financing package funded the acquisition of the entire business, including real estate, and included healthy working capital availability to support future growth. At their request, we continued to advise the new owners for 18 months following the buyout closing in their transition from being middle managers to their new roles as executives.

Leveraging Enterprise Value:

A Washington, D.C. firm conducted long-term socio-demographic studies for the USAID, The World Bank and similar organizations worldwide. The strength of the organization was a number of highly qualified PhDs in their respective fields, who were well-known in their specialized markets. The business had been formed 10 years earlier with the help of two venture funds that were seeking a return on their investment and an exit from the situation. The shareholder/management team was referred to us by their bank. We represented the principals in negotiations with the equity funds, and also structured and closed the $8 million full buyout of the funds. The financing was particularly challenging because of the absence of tangible assets beyond the excellent reputation of the organization which was the foundation of its enterprise value.

Management Buyout:

A software development company had acquired the exclusive rights to conduct internet-based, on-line registration of motor vehicles in the States of Connecticut, New York, New Jersey, Pennsylvania and California. The business had not yet achieved cash flow breakeven and the owner, GE Capital, had lost interest in providing continued support to the enterprise. Operating management was concerned that the company would be sold out from under them, so they sought help from their commercial banker who referred them to L. R. Nathan Associates. We were able to complete the $10.2 million acquisition of the business on behalf of key managers in partnership with a private equity fund. Management received a 20% free ownership interest, plus the option to earn 5% more, with absolutely no capital of their own.

Asset Based Recapitalization:

A large Upstate N.Y. manufacturer of pressure treated lumber had grown over the years with an uncoordinated hodgepodge of financing from small regional banks. When growth of the business outpaced the lead lender’s risk appetite, they asked to be replaced. The company’s CPA firm recommended L. R. Nathan Associates to put together a total recapitalization. This $23 million transaction was quite complex due to the seasonality of the business, the number of entities involved and the multiple real estate locations. Moreover, owner-occupied real estate is not the preferred collateral for asset based lenders. Nevertheless, we were able to generate vigorous competition among five national asset based institutions for the combination revolving credit facility, term loan and blanket mortgage – which produced remarkable pricing and terms, without a personal guaranty from the owner.

Majority Shareholder Buyout:

A Connecticut taxicab company had been operated for a number of years by a skilled manager with a minority ownership interest. He wished to buy out his controlling partner, but found that bank financing was very limited. Connecticut is not a medallion State, so minimal tangible assets were available to secure bank loans or any form of asset based financing. The company’s regional accounting firm referred L. R. Nathan Associates to the minority shareholder/manager.  We immediately recognized the transaction as a pure cash flow deal, with some enterprise value attributed to State-authorized operating certificates. We completed the transaction with a mezzanine fund in Houston, which required less than 15% equity participation through a warrant, leaving the minority shareholder/operator with a strong controlling ownership stake.

Turnaround Financing:

A Connecticut metal castings foundry had survived a protracted industry-wide recession that had driven more than half the United States foundries out of business between 1999 and mid-2004. A too strong U.S. dollar had made domestic producers unable to cope with foreign competition. Although the company had managed expenses effectively during the period and incurred limited losses, its bank had asked them to find another home. Environmental issues at the foundry added to the difficulties. L. R. Nathan Associates was recommended to resolve the situation. We were able to make the case for a turnaround based on improved demand for the company’s products in an environment of a weakening dollar and a more competitive domestic foundry industry. We secured commitments to replace the bank with new long-term financing and plentiful working capital.