MP Star invoice factoring business case study: Factoring helps plastics company in corporate buyout

There’s an old joke which goes something like, when your ship finally comes in, just make sure you’re not at the airport.

Corny? Sure. But it makes the point that being in the right place at the right time can be critical. But what if you’re in the right place, but at the wrong time?

Cash flow problems: A successful, but debt-burdened company

The president and owner of a specialty plastics and rubber manufacturing company had built the small business into a respected enterprise. The company had doubled its sales in the last four years while establishing a diverse, loyal customer base.

Most of the recent growth was due to an aggressive expansion strategy. The company had pursued new product categories, moved into remote geographic territories, and even acquired two smaller competitors.

The moves had paid off with increased revenues and an enhanced reputation in the industry. The company had gone from “also-ran” status to a respected player in just a few years.

But on the downside, the business was very highly leveraged, due to the heavy borrowing need to fund the growth. Its debt load had not yet reached a dangerous level, according to the staff accountant, but additional borrowing was entirely out of the question.

It’s more than cash flow problems! There is also the timing problem!

All this came together, of course, when the company needed additional capital more than ever.

“One of our regional competitors suddenly came up for sale,” said the company president. “We were contacted, as a sort of a courtesy, with an offer to buy that company. Their products fit well with ours, they had a good production staff, and the long-term synergies of the two companies looked great. We were very interested. We felt like this was the one deal we really needed to make.”

But how? The company had run out of debt capacity and didn’t have nearly the funds on hand to complete a cash sale.

Bad timing. You could say the company president was “at the airport.”

The Action: Contacting MP Star to discuss financing options for the corporate buyout

The owner was directed to MP Star to see if a financing package could be structured to enable the corporate buyout. The owner and MP Star met to review some options and several issues were uncovered.

First, due diligence showed that the acquisition target was actually coming off a couple bad years, and had actually been operating at a loss. This situation made the seller’s bank very uncomfortable.  The combined firms would likely still be profitable, but – in a positive twist – the lower than expected sales from the target firm allowed the owner of the buying company to negotiate a better price.

Second, outstanding receivables from the two companies were significant (about $900,000) and could be factored with MP Star to help buy out the owner of the target company.

The Result: Cash flow problems were addressed and a successful transaction occurred

MP Star helped negotiate and structure the corporate buyout. The basic terms were that:

  • The factoring proceeds were used to pay off the buyer’s existing loans
  • The buyer assumed the seller’s existing debts and the bought-out owner was paid a significant down payment on the sale, primarily from funds obtained through factoring invoices with MP Star
  • The balance was to be paid, with interest, to the seller over four years
  • The buyer had the option to pay-off the obligation early with no penalties

Both parties signed off on the deal. The combined companies thrived under the new structure. And, thanks to invoice factoring programs put in place by MP Star, the balance on the sale was paid off nearly six months early, saving thousands of dollars in interest charges.

The Cash Flow Management Lesson

Cash flow problems don’t have to prevent your company from taking advantage of unexpected, potentially profitable opportunities.

For more MP Star Financial invoice factoring case studies:

Business Case Study: Invoice factoring leads to IRS tax settlement

Business Case Study: Invoice factoring helps new company get over the start up hump

Business Case Study: Invoice factoring helps company win major contract

Business Case Study: Invoice factoring helps company survive cash flow interruption

Business Case Study: Invoice factoring partnership boosts company’s exports

Business Case Study: Invoice factoring works when business is good…but cash flow is terrible

Let your receivables help grow your company! Contact MP Star Financial to discuss your invoice factoring options. We can talk about your situation and help you find the money you need to grow! Call MP Star Financial at (800) 833-3765, extension 150 to discuss your cash flow management challenges today.

 

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