Buying a business using bondholders

**DJ Samson** · 06-29-2007 09:58 PM

I was given advice a few days ago that really changed the way I think of small business and investing. The advice that was given to me helped me understand why I should stay away of trying to sell small items and taking all the hard work. It instead helped me see how to use my knowledge to spot an investment.

In this example, a company is selling for $1,000,000 has a 20% ROI with a positive cash flow of $200,000. I'm thinking of finding an investment banker that can create a prospectus for my deal and sell it to financial institutions as a bond. The investment banker will receive 10% of the yearly cashflow that I make and there will be a 5% annual ROI for the bondholder for a time period for about 10 or 20 years.

This deal would allow me to profit $135,000 annually. The final steps after I secure a bondholder and purchase the business without any of my own funds will be to hire a manager to run the company.

I can't get in touch with the person who gave this advice to me so I have a few questions of my own:

1.) Would an investment banker take me serious if I was proposing a $1 million deal and I am 16 years old? Also, where can I find an investment banker?

2.) Should I look into companies that are in my interest (like auto racing, cars, snowmobiles, etc.?) And does it matter if the companies are in my area or can potential businesses be anywhere in the country?

3.) How can I calculate the future of this company that I want to buy? Couldn't it sink to the floor after five years? Is the risk factor high? I am a middle class kid and if I decide to take a $1 milllion bond, is there a chance I'm going to be $1million in debt by the time I graduate high school?

4.) Does this concept of using bondholder's money to purchase businesses work with franchises too or just existing companies?

5.) Is there any way (books, seminars, etc.) that I can learn more about this?

Thank you!

**akula** · 06-29-2007 10:40 PM

go and ask the investment bankers directly...

http://www.ibankingoasis.com/

I advise you to have a very thick skin

these guys are all very smart, very experienced and very brutal

be offensive to them, they like a challenge

**pacificfame** · 06-29-2007 10:45 PM

Wouldn't you have to be at least 18 to enter into something such as this?

**akula** · 06-29-2007 11:21 PM

Corporate entities enter into these arrangements

the kid doesn't have to be listed as a director

In fact, publicly, the kid's not gonna have anything do anything with the deal

only an idiot would tolerate even a rumor of doubt around a securities issue

dj's not gonna be on any boards, he's not gonna be an executive, so he will either be listed in a junior role, or as a shareholder (or trust beneficiary)

as far as everybody else is concerned, the kid doesn't exist

**DJ Samson** · 07-01-2007 11:33 AM

Thanks for the tips Daniel!

But one final question: Many people have been telling me an investment banker is not entrepreneurial and can't understand why a 16 year old is so motivated to own a business. So, would it be as effective to find an investment banker through the internet, perhaps on a forum like this, and leaving my age out of the equation?

Thank you again.

**akula** · 07-01-2007 09:47 PM

Originally Posted by DJ Samson

So, would it be as effective to find an investment banker through the internet, perhaps on a forum like this, and leaving my age out of the equation?

the answer is no...and you really need to grow up and not ask stupid questions like this (and I'm not gonna the trumpet the obvious and explain why it's a stupid question). as far as "bankers not being entrepreneurial" goes, who ever told you this is an utter idiot. pound for pound bankers take more risks than any other group of finance professionals

the problem with your deal is not the bankers. the problem is your lack of knowledge. you don't know anything about the topic in this thread. you don't even know the name of what you wanna do (it's called securitisation). because you don't know these things, you don't have a clue for how to diligence your target assets (i.e. how much to pay for the properties), or who to contact, or how to contact them

It's not the age directly which is gonna turn people off, it's you lack of vocabulary, or you saying things like "proposing a $1 million deal" (which is way too low). get an education. get a clue about asset management. you don't know the first thing about constructing a property portfolio.

when is the next property investment seminar in your area?

**SMR10** · 07-01-2007 10:02 PM

Now there is some constructive criticism!!

**akula** · 07-01-2007 10:31 PM

the point of the above is to get dj to appreciate that he is new to property and that he needs training and guidance in this space, if he is to stop saying and doing things which are not productive to his ambitions

...and come to think of it...I have no idea why the dumb ass who advised dj even mentioned ibankers...ibankers have absolutely nothing to offer dj

...for this situation, retail banking is just fine....securitisation is not appropriate in these circumnstances

**MatteyBiz** · 07-01-2007 10:45 PM

Hey DJ, I like your enthusiasm. I also like that you're already concerned about your future at 16. Though I've learned a lot over the past year, I'm still very new to this area. PM me or catch me on AIM: vbfrost. We can help each other acquire more and more knowledge, and eventually, with a lot of determination, we'll succeed.

**akula** · 07-01-2007 11:03 PM

Originally Posted by DJ Samson

5.) Is there any way (books, seminars, etc.) that I can learn more about this?

Thank you!

this is a list of nyse Real Estate Holding & Development companies

http://www.nyse.com/about/listed/112...?ListedComp=US

read their annual reports

**Ultimatum Dynamics** · 07-01-2007 11:39 PM

Bankers may take allot of risks but they also know how to cover their butts very well. So watch what they do and don't let them push you around or force you into comprimising in ways that make you feel unsecure.

**WanganRunner** · 07-03-2007 02:26 PM

ibankingoasis is a great site, I've been on there for awhile.

They need an RE section though, because so much of the corporate culture/comp/lifestyle stuff doesn't really carry over very well from IBD.

OP: There are "investment bankers" that will take $1-5 million deals "seriously", but they aren't in the bulge bracket, they'd be much smaller regional players. I know several of them in the DC area, but you'd better have a damned good idea of what it is you want to do before waltzing into one of their offices.

EDIT:

Originally Posted by akula

this is a list of nyse Real Estate Holding & Development companies

http://www.nyse.com/about/listed/112...?ListedComp=US

read their annual reports

I actually work for one of the companies on that list, lol.

**DJ Samson** · 07-03-2007 03:06 PM

Thank you for your assistance.

As you can probably tell, I am quite confused since many people on other boards have been telling me what investment bankers can offer me (like creating an exit strategy, a prospectus, and other benefits) while on this board I've been told investment banking is not benefitial and that I should stick to retail banking which I have no experience with.

I do agree I have a lack of knowledge here. When I wanted to learn about stocks I read investing books and when I wanted to learn about creating a start-up I read entrepreneurship books.

But this is a different beast. This is buying an exisiting company, and before being educated about investment banking I thought I would never be eligable to purchase a company until I was already an established business man with an established start-up company while having a bank account with hundreds of thousands of dollars. I wish I had books about purchasing a comany using other people's money but I can't find any - and if you recommend any please tell me. When you research "high fiance" on Amazon you come across a few books on mutual funds and not much else. So if its just the words or phrase that I'm missing of what I'm trying to get myself into I desperately need to find it so I can start learning.

After reading and learning about investment banking, Daniel has thrown in retail banking. I've never taken a personal loan before so excuse my ignorance, but I'm almost positive my parents won't sign on with me which puts me at a disadvantage with the bank.

Another person on the Rich Dad Forums have mentioned that I'm better off not dealing with any banks and only dealing with private investors who I can learn from - even if my percentage of ownership is marginal.

So here I am with three possibilities of financing and one goal of purchasing a company.

Thank You

**WanganRunner** · 07-03-2007 03:24 PM

www.bizquest.com

I know it sounds silly, but this is a listing service for small businesses for sale. They have a "resources" section with a number of articles on valuing and acquiring existing small businesses.

The articles are skewed to make it sound like a nice, relatively easy proposition (to get you to buy), but there's still some worthwhile information there.

Read the free stuff before you buy books. There's tons of great information on the internet about how to value a business.

Getting financing is the easy part once you've learned to spot a good deal.

Looking through the businesses for sale can be fun too. I'm actually looking at acquiring one of the small auto dealerships listed in there.

**akula** · 07-04-2007 12:01 AM

ok...for a 1 mill transaction, let me give you some feedback

1. Wholesale/investment/private banks - these are not an option. The deal is too small for any securitisation advice.

2. Private Equity investors - these are not an option. You are an unacceptable risk.

3. Retail banks. Best option, you are looking at a mortgage/business loan.

DJ, the whole "Buying a business using bondholders" thing (i.e. securitisation) is used in privatizing large scale national industry, or setting up listed infrastructure trusts. It has nothing to do with buying a small business in a new york county. The legal and banking fees alone for a securitisation deal would outweigh the purchase price.

Originally Posted by DJ Samson

Thank you for your assistance.

As you can probably tell, I am quite confused since many people on other boards have been telling me what investment bankers can offer me (like creating an exit strategy, a prospectus, and other benefits) while on this board I've been told investment banking is not benefitial and that I should stick to retail banking which I have no experience with.

I do agree I have a lack of knowledge here. When I wanted to learn about stocks I read investing books and when I wanted to learn about creating a start-up I read entrepreneurship books.

But this is a different beast. This is buying an exisiting company, and before being educated about investment banking I thought I would never be eligable to purchase a company until I was already an established business man with an established start-up company while having a bank account with hundreds of thousands of dollars. I wish I had books about purchasing a comany using other people's money but I can't find any - and if you recommend any please tell me. When you research "high fiance" on Amazon you come across a few books on mutual funds and not much else. So if its just the words or phrase that I'm missing of what I'm trying to get myself into I desperately need to find it so I can start learning.

After reading and learning about investment banking, Daniel has thrown in retail banking. I've never taken a personal loan before so excuse my ignorance, but I'm almost positive my parents won't sign on with me which puts me at a disadvantage with the bank.

Another person on the Rich Dad Forums have mentioned that I'm better off not dealing with any banks and only dealing with private investors who I can learn from - even if my percentage of ownership is marginal.

So here I am with three possibilities of financing and one goal of purchasing a company.

Thank You