Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
HOW TO TURN AROUND YOUR DISTRESSED COMPANY
08 :: How to deal with an investors' haircut
by Andrew Tellijohn
THE BEST WAY to avoid giving your investors a haircut, otherwise known as reducing the value of their equity, is to practice good planning upfront. Be conservative with your projections and run a tight ship after you open your business.
That said, if something happens and you are in need of a turnaround there are a number of debt and equity options available provided you can convince them you are a worthy risk.
First, if you want to retain control of your company, try raising money without selling all your equity. See if family and friends are willing to invest. Or approach your customers with favorable terms and try to pre-sell them an order. If a company?s debts have more value than its assets, however, a new investor might only be willing to come on board for equity and the promise of being made the primary benefactor should the business survive and thrive.
Existing original investors, in that case, will have to take a backseat as a subordinated holder or may get written out altogether ? hence, a haircut.
A situation like this is also going to be tough because while you might still be involved with your company, you are going to lose some or all operational control, at least during the turnaround phase. Try to work out a deal with the new investor in which you can regain portions of your equity if the company reaches certain milestones.
Another option for retaining some level of control is to negotiate to keep all or part of your board intact. You may or may not convince your investor to agree to these steps, but it never hurts to ask. In business everything is negotiable and some turnaround groups aren?t interested in holding businesses long-term ? they want to get in, do the turnaround, make their money and sell.
But don?t get mad at your original investor or your bank for not being able to put more money into your business. That?s the equivalent of getting mad at the cops for pulling over your speeding car.
Venture capitalists, banks and other investors want to see your business succeed. But they also want to make money and it?s only natural for them to negotiate tough deals upfront.
CHECKLIST
? Avoid the situation upfront by creating a good plan and running a tight ship.
? Have contingency plans that include multiple options for raising money should your situation become tight, such as tapping friends and family or pre-selling an order to customers at favorable rates.
? If you need a new investor try to negotiate a set of milestones that will allow you to regain portions of your equity.
? Everything is negotiable. If you don?t ask, you won?t get what you want.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
