Investment Needed to build successful family business!!!

[signaturebev.com]

I am looking for an investor that has an interest in helping me purchase new equipment for my company and to help purchase a portion of my familys company. My family has been in the bottled water industry for almost 20 years and my fathers brother who is his partner is trying to tear this successful company appart. I need roughly $275,000 to buy out his half of the company and roughly another $75k-$175,000 to open a new state of the art bottling plant. The company has been in business since 1993 and strives. This year the company pulled a gross sales of $1.2 million with a net of $370,000. With the investment I can have the money paid off within 3-5 years including whatever agreed intrest. Also we will be more than doubling our profit once the new bottling plant is opened. The company does a little over 120k cases a year and I also have 2 costomers whe have agreements of bringing another 200k cases a year to me once I have the new plant up and running!

[akula]

okey dokey..with these financials, the company will be looking for MBO finance from a middle market merchant bank. That's the best option for solving your problem. There's two principal transactions: the company borrowing from the bank, and you borrowing from the company p.s. the 1st transaction may not be necessary, and then you just do a straight vendor financing arrangement

[signaturebev.com]

can you explain that more in detail, I think i forgot to mention that my company Signature Beverages is very small, has no equidy and little capital. I just formed it about 5 months ago branching off from my fathers company as a fall back company just in case something happens with my uncle and father and there problems between eachother! A loan i dont think would work for me because to be honest i have nothing to hold it against. I know the private label business, beiing around my fathers company since I was young as well as the fact that my cousins used to own a $100,000,000 a year business called Kleen-Brite!! Unfortunately that went under doe to some issues!

[akula]

what's the name of your uncle's company?

[signaturebev.com]

well, Its my fathers and my uncles company. They are equal partners but my uncle is supposed to be silent but when the business started to become successful he began to jump in and its causing major havic on the company. Springwaters INC. They are just like me, private labeled bottled water!

[signaturebev.com]

Unfortunately the relationship between my father and I and my uncle is torn, and my father and I dont talk to my uncle unless its nessisary! I am only 20 years old but I know this business inside and our, and I am a member of the NEBWA! (North Eastern Bottled Water Association)

[akula]

okey dokey..let's just deal with one transaction at a time.
so you want to buy some equity in Springwaters INC, is that right?

[signaturebev.com]

corect! 50% of the total shares

[akula]

right..ok then
these kinds of transactions (i.e. family businesses) are done through vendor finance
basically, it works in four steps:
1) you present your pitch to Springwaters INC
2) you are appointed as director of Springwaters INC
3) Springwaters INC writes you a loan to buy Springwaters INC shares
4) You repay the loan amount to Springwaters INC

the typical reason for why Springwaters INC won't write you a loan is because there is a problem with step one.

what do you think of this financing option?

[signaturebev.com]

my uncle wants Cash! thats the one drawback! I talked about payment options and or holding paper!

[akula]

jacob, in this thread, I've counted more than 20 exclamation points and 0 question marks
we can't have a discussion you unless you calm down and start asking questions on how to effectively manage your financing options

[signaturebev.com]

ok, what are my options? How can I find an angel investor?

[akula]

sure...you have options. i'll list the major ones in a descending order, starting with the best and ending with the worst (in terms of WACC, time to execution, term flexibility etc)

1. Vendor finance, unleveraged (Springwaters INC lends you cash out of it's equity)
2. Vendor finance leveraged (Springwaters INC lends you cash financed with a new liability)
3. Debt from a retail bank
4. Equity/hybrid finance from angels/merchant banks etc

Do you wanna discuss option 4 or another option? Option 4 will be the most expensive, most uncertain and most difficult to execute. Normally, it's only logical to discuss the best options, before considering the option of last resort.

[signaturebev.com]

at this point option 4 seems like the only one that will work for me, not to sound crazy but i dont care about the interest rate, I just want to re-gain controll of the business.

[akula]

Okey dokey then..

Option four is twofold:

1) You secure a loan from a private investor, use the loan to buy equity in Springwaters INC and use the equity as collateral for the outstanding principal. Because of familiarity bias, your best prospective financiers will be other NEBWA members, who want exposure to Springwaters INC equity. The problem, of course, is that to enjoy this exposure, it's much cheaper and easier for financiers to avoid dealing with a 3rd party and just approach Springwaters INC directly with an offer of expansion capital.

2) Alternatively, you might take the option to raise a round of equity finance for Signature Beverages to expand your current operations and invest some money in Springwaters INC, particularly if Springwaters INC is also an investor in the round and offers some distribution rights, or other assets.

Overall, since option 4(1) is non nonsensical, what's left is option 4(2). That's where you basically raise money from Springwaters INC and other bottle label companies (leveraging the financiers against each other) to start your own shop and include an equity swap as part of the transaction...giving each investor exposure to every other investor, for the purposes of diversification. That's the only sort pitch which is plausable in these circumstances.

Essentially, the value you'll be creating is giving the shareholders of Springwaters INC and Investors X, Y, and Z the option to be invested in a whole portfolio of bottle labeling companies, as opposed to just their own companies.

Is any of this making sense?

Do you need me to run you through an example?