I have been waiting a long time to make a move in the markets, specifically with the intention of buying small companies and flipping them. I hope that when the time comes for me to pull the trigger on a company that falls into my lap that I will be able to obtain the proper financing from either a large investment bank whom I have a relationship with, or smaller ones I have a relationship with. I don’t plan on making any cold calls. I am familiar with IB and M&A, but by no means am an expert and have not actually worked in that specialty. The last M&A interview I had was one I only accepted because they were willing to give me equity in the group. It was for an associate position for a generous sum of money. It didn’t pan out and my intention to get into M&A started roughly 9 years ago and my intention now is to come in as the buyer of the company. It could happen in a year, 5 years, or 10 years. I don’t know. What I do know is that when the right opportunity presents itself I want to be able to quickly pull the trigger and negotiate an acquisition.
It could happen tomorrow. I doubt it will be soon, but I want to be ready. Does anyone know the process of lets say buying a $5 million dollar company and how an individual approaches an IB to provide financing? What are the normal courses of action and if it is debt financing what kind of rates would be attractive? Obviously if they charge 10% debt and I flip it for $10 million in 2 years it is a win, but how likely are IBs to provide this kind of financing and who is the person who approves? I have a strong contact at MS in Healthcare IB who would probably be one of my first calls who is a VP. He would probably need to get the MD approval to release the funds, correct? The VP is smart and we are on such a relationship that if I submitted a model to him he would probably help me fine tune it to get approved. I just want to be ready. I have been waiting to pull the trigger for a long time and recently have been exposed to companies that are not prospects per se, but could be potential acquisition targets and would like to be able to offer a number to a CEO of a small company to buy with the ability to get the financing for the deal. This might sound like overplanning as I most likely will not pull the trigger for at least 5-10 years. I would rather not make a move than pay $500k in financing to realize I purchased a stagnant illiquid company blacklisting my future deal flow until I built up the cash myself to move back into the space. Hopefully my VP contact will make MD by that point and I can just make the call and get the funds.
My corporate governance is rusty as well. I would need to take control of the company to polish it into the next phase. Any feedback is appreciated.
What kind of feedback are you looking for on this pie in the sky nonsense? IB financing a $5mm deal? I don’t know any IB group that would even take that call. That’s like calling in IB to buy a gas station or McDonalds. You’d talk to your local Bank of Meh, put your 25% on the table and pledge your life to them. Morgan Stanley IB advising on a $5mm deal… Hah.
Ok sure thanks for the heads up. I actually do know a boutique investment bank that would do that level of financing. I was not aware MS had a lower threshold for deal flow.
So what kind of lower limit do banks like MS have to provide financing and how hard is it for a small company to get? Are we talking $100 million dollar companies, $500 million dollar companies? Throw me some numbers to get an idea. $5 million is kind of low for a company now that I think about it. It would definitely be just past the proof of concept stage which I don’t really want to invest in a company to acquire with that kind of revenue instability. I would be somewhat comfortable with the $10-$50 million dollar range in valuation, but would be a bit uneasy flipping anything higher than that on my first go around of M&A as a buyer and leader of the newly formed company.
When I say this probably will not happen for 5-10 years and I am preparing now and have been looking into the space for the past 9 years does not completely mean it is a pie in the sky idea, but I do see where you perceive my words to appear that way.
The first step to learning is to admit you know nothing. I said I had not practiced in that arena. I just want to learn and be prepared to take the knowledge and skills I have worked very hard to gain and apply them in the M&A field. I would like to start small and build rather than jump into a large transaction whereby I am putting all my eggs in one basket. Optimally I would prefer to take on a few deals at the same time to diversify the risk, but market timing is a beast that can only be tamed by a select few. Hell, i’m going to be in school and residency for the next 13 years most likely. I’m pretty booked as it is but this is one of my passions. I stand for value. 8)
How much equity are you bringing to the deal? 25-30%? If you’ve got the $10-20mm in the bank to make that work, then I’m sure some folks would talk at a $50mm level. You’re definitely into a different bank relationship level over the $10mm mark. But you need a turd or someone here with more experience at the smaller end of the deal spectrum to weigh in. I haven’t done any capital markets deals less than a $250mm deal, so my knowledge here is second hand at best. All the smaller equity deals I’ve been in have been advised by the target’s accountant or lawyer and all in house for my firm, no banks. And these can be up to $25mm. But the financing is all corporate so a different world.
You’ll have to make contacts with mid-market IB guys. their target deal sizes (depending on the shop) range 5-100MM with $30MM usually being the sweet spot. In Canada, every big bank has some kind of MMIB team and from what i’ve seen big 4 firms have advisory teams within the space as well. I can imagine something similar is the case south of the border. They typically source their deals from company contacts market to PE firms. Depending on the subject deal, pricing largely “depends”.
So, you’re going to be in school and residency for the next 13 years or so and want to play one-man PE shop on the side because it is a passion of yours?
I’m just going to chalk this up as another one of your brain fart ideas you proclaim on here before doing any substantial research.
Yeah I really need to focus on school. I don’t want it to be a one man shop - that’s a been unreasonable. It is quite far from now. I was testing the waters to some extent.