The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition PDF
Preview The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition
Additional Praise for TheHandbookofFinancingGrowth,SecondEdition “Morethanever,weneedtomentorthestart-up,theentrepreneur,theearly stageCEO.Thisbookdoesjustthatandlevelstheplayingfieldforbusiness leadersatatimewhenfinancingisthe‘holygrail.’” —TomSnyder,RetiredCEO,RemyInc., andPresident,IvyTechCommunityCollegeofIndiana “Our CPA and Consulting firm was founded based on the passion of en- trepreneurship.Westartedwithnothingandhavebuiltafirmof160people, including25partnersand4officesinNorthwestFloridaandSouthAlabama. Our clients are entrepreneurial—we’ve coached and guided many of them throughfinancingandequitytransactions.TheresourcesinTheHandbook forFinancingGrowth,SecondEditionaregreatassetsforourpractice.I’ve personally met Kenneth Marks, working together on an engagement, and I can see his passion, thoroughness, and attention to detail throughout the book.Weuseitasatrainingtooltohelpfocusourpartnersandmanagers onbeingtrustedadvisorswhodelivernotablyexcellentservice.Thanksfor thispracticalwealthofknowledge!” —J.MortO’Sullivan,III,ManagingPartner, O’SullivanCreel,LLPCPAsandConsultants “OurcompanyhasbeenlargelytransformedthroughtheuseoftheGrowth Strategy Navigator described in this book. It has provided a consistent framework from which we develop both our long-term strategic business plans as well as our annual business plans. If it is growth that you seek, thisframeworkwillhelpyourorganizationdeliverresultsoncethoughtnot achievable.TheHandbookofFinancingGrowth,SecondEditionhasgiven usacommonlanguageandprocessfortacklingmajorinitiatives,aswellas anactionableroadmapforexecutingourplansoverall.” —RobertBarker,President,BobBarkerCompany The Handbook of Financing Growth Founded in 1807, John Wiley & Sons is the oldest independent publishing companyintheUnitedStates.WithofficesinNorthAmerica,Europe,Aus- tralia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional andpersonalknowledgeandunderstanding. TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio manage- menttoe-commerce,riskmanagement,financialengineering,valuation,and financialinstrumentanalysis,aswellasmuchmore. Foralistofavailabletitles,visitourWebsiteatwww.WileyFinance.com. The Handbook of Financing Growth Strategies, Capital Structure, and M&A Transactions Second Edition KENNETH H. MARKS LARRY E. ROBBINS ´ GONZALO FERNANDEZ JOHN P. FUNKHOUSER D.L. WILLIAMS John Wiley & Sons, Inc. Copyright(cid:2)C 2009byKennethH.Marks,LarryE.Robbins,GonzaloFerna´ndez, JohnP.Funkhouser,andD.L.Williams.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,222Rosewood Drive,Danvers,MA01923,978-750-8400,fax978-646-8600,oronthewebat www.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030, 201-748-6011,fax201-748-6008. 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Designationsusedbycompaniestodistinguishtheirproductsareoftenclaimedby trademarks.Inallinstanceswheretheauthororpublisherisawareofaclaim,theproduct namesappearinInitialCapitalletters.Readers,however,shouldcontacttheappropriate companiesformorecompleteinformationregardingtrademarksandregistration. Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin printmaynotbeavailableinelectronicbooks. FormoreinformationaboutWileyproducts,visitourwebsiteatwww.wiley.com. LibraryofCongressCataloging-in-PublicationData: Thehandbookoffinancinggrowth:strategies,capitalstructure,andM&Atransactions/ KennethH.Marks...[etal.].–2nded. p. cm.–(Wileyfinanceseries) Includesbibliographicalreferencesandindex. ISBN978-0-470-39015-3(cloth) 1.Smallbusiness–Finance–Handbooks,manuals,etc. 2.Businessenterprises–Finance– Handbooks,manuals,etc. 3.Corporations–Finance–Handbooks,manuals,etc. 4.Consolidationandmergerofcorporations–Handbooks,manuals,etc. I.Marks,KennethH. HG4027.7.H355 2009 658.15–dc22 2009008537 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 To Kathy, Lauren, Lilly, Jenna, and Samuel in support of doing God’s will Contents Preface xv Acknowledgments xxi AbouttheAuthors xxiii PARTI TheFinancingProcess 1 CHAPTER1 Introduction 3 CHAPTER2 PlanningandAlignment(BeginwiththeEndinMind) 7 AnOverviewofthePlanningProcess 8 StrategicPlanning 10 UpdatedForecast 27 BusinessValuation 27 CHAPTER3 Acquisitions,Recapitalizations,andExits 37 Acquisitions 37 SellingtheCompany,CreatingShareholderLiquidity 41 CHAPTER4 CapitalStructureandFinancingStrategy 45 AssimilatingtheDrivers 49 DevelopingLiabilityLimits 63 CHAPTER5 SourcesofCapitalandWhattoExpect 69 BootstrappingSourcesandTechniques 72 ix x CONTENTS IndividualInvestors(PrivatePlacementsNotfrom AngelsorInstitutions) 82 AngelInvestors 83 CommercialBanks 95 Asset-BasedLenders 100 CommercialFinanceCompanies 115 LeasingCompanies 116 PrivateEquity 119 VentureCapitalFunds 122 MezzanineFunds 152 BuyoutFunds 157 HedgeFunds 164 StrategicorIndustryInvestors—Corporate VentureCapital 166 MerchantBanks 168 CommunityDevelopmentInitiativesandGovernment Agencies 169 Micro-capPublicEntities 193 RoyaltyFinancing 196 CHAPTER6 EquityandDebtFinancings:DocumentationandRegulatory SourcesofCapitalandWhattoExpect 203 BasicDefinitionofDebtandEquity 203 DebtInstruments 206 LoanDocumentation 212 EquityInstruments 260 EquityInvestmentDocumentation 264 CompliancewithSecuritiesLaws 292 CHAPTER7 ExpertSupport—ThePlayersandTheirRoles 301 Counsel 301 BoardofDirectors 303 InvestmentBankers 306 Accountants 312 Consultants/Advisers 315 Summary 317 CHAPTER8 ClosingtheDeal 319 ProcessCheck-In 319 FinalPerspective 326 Contents xi PARTTWO CaseStudies 329 CASESTUDY1 Asset-BasedLender,ReceivablesFinancing 332 CASESTUDY2 Asset-BasedLender,High-RiskLoan 336 CASESTUDY3 Asset-BasedLender,AssignmentforBenefitofCreditors 339 CASESTUDY4 Asset-BasedLender,Acquisition 344 CASESTUDY5 Asset-BasedLender,TurnaroundFunding 348 CASESTUDY6 Asset-BasedLender,GrowthFinancing 352 CASESTUDY7 CommercialFinance,TradeFinancing 356 CASESTUDY8 AngelInvestor,InitialFundingandSaleofCompany 359 CASESTUDY9 VentureCapital,EarlyStageGrowthEquity 362 CASESTUDY10 RoyaltyFinancing 365 CASESTUDY11 VentureCapital,GrowthEquity 367 CASESTUDY12 CommunityDevelopmentFinance,GrowthFunding 370 CASESTUDY13 DebtwithRevenueSharing 375 xii CONTENTS CASESTUDY14 MezzanineInvestment 377 CASESTUDY15 PrivateEquity,AcquisitionthroughExit 378 CASESTUDY16 PrivateEquity,ManagementBuyout/PartnerExit 380 CASESTUDY17 PrivateEquity,Restructuring 382 CASESTUDY18 PrivateEquity,AcquisitionwithManagementParticipation 385 CASESTUDY19 PrivateEquity,PublictoPrivateTransaction 388 CASESTUDY20 PrivateEquity,Buy-and-BuildStrategy 393 PARTTHREE FinancingSourceDirectory 397 SuggestedUseoftheDirectorySection 399 APPENDIXA CorporateFinancePrimer 523 APPENDIXB FinancialStatements 551 APPENDIXC DiscountRates 563 APPENDIXD HowFastCanYourCompanyAffordtoGrow? 567 APPENDIXE NotesaboutStart-Ups 583
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