Case Study: A business acquisition high on hope but low on capital
Business Stage: Growth following acquisition
A manufacturer acquires a sub-contracting installer
A manufacturer in the building products sector found itself on a classic business quest for growth by acquisition. An initial equity raise was launched with two objectives: to fund a targeted downstream acquisition and to finance subsequent growth. However, after successfully acquiring the downstream distributor—an installer of its products and a building sub-contractor—the company discovered that the capital raised was woefully inadequate for the merged entity’s operations.
The Call to Adventure: A Downstream Vertical Acquisition
The acquisition was no ordinary one; it was a calculated move into vertical integration. By acquiring an installer who also acted as a building sub-contractor, the manufacturer aimed to lock in synergies, extending their product distribution while benefiting from a more stable and cost-effective supply chain.
The banks wouldn’t help, mainstream debtor financiers couldn’t help…
When the manufacturer sought out an additional $2M for working capital, the traditional avenues were less than welcoming. Banks viewed the merged business as too novel to finance, and standard debtor financiers declined support due to the company’s practice of billing clients via progress claims.
Enter the Finance Broker
Faced with a dead-end, the manufacturing accountant recommended the engagement of a finance broker known for their commercial expertise. The broker led the company beyond the traditional financing world and into the realm of special situations asset-based capital raising.
Introduction to Hermes Capital
Recognising the unique nature of the manufacturer’s billing through progress claims, the broker knew exactly where to direct the company: Hermes Capital, a specialised lender with expertise in funding based on progress claims. The referring accountant told the broker he had never heard of Hermes. “That’s why you need me” was the brokers reply.
Unlocking Critical Capital
Hermes Capital, familiar with the intricacies of the construction industry billing systems extended a $2M invoice finance funding facility based on their domain expertise in progress claims.
The Lifeline of Working Capital
The collaboration between Hermes Capital and the insightful broker materialised into the working capital that the manufacturer so critically needed. Now the company was primed to maximise the benefits of its strategic acquisition and newly broadened market access.
With the pressing financial issue resolved, the manufacturer began to fine-tune the operational synergies between its original manufacturing business and its new installer/sub-contractor wing.
The company, now financially stable, moved forward with a renewed focus on sustainable growth, fully leveraging the advantages of its downstream vertical acquisition.
This journey is a testament to the indispensable roles played by savvy brokers and lenders with domain expertise like Hermes Capital in underwriting business transformations.