Show Me the Money! Remember this line from the fictional Rod Tidwell? It’s from the movie Jerry McGuire with Tom Cruise as Jerry McGuire. If you want a good laugh, watch the “Show me the money” line on YouTube. The movie ain’t bad either.
Almost every entrepreneur can relate to “Show Me the Money.” Some of the businesses that I have started had a very minimal capital need and there are others that I have started or pursued as an acquisition needed more money that comes with the monopoly game. A little later in the post, I’ll walk you through which I think was the best opportunity I had that slipped through my fingers because I didn’t know what I was doing at the time trying to raise money. I still get pissed because of that deal.
Here’s the big question. You got this great idea for a business but where do you get the money from to start? Ever heard the phrase, ‘ain’t got a pot to piss in nor a window to throw it out of?’ Regardless of whether you’re trying to open a barbershop or a bakery or buy a convenience store or start Facebook, the challenge of getting money to fund your venture is the same. If you don’t have $5,000 to do a $5,000 business, it’s the same as not having $5 million for a $5 million acquisition. If you ain’t got the money, it doesn’t matter how much you need, right? There’s a way to approach both
Let me say this and it’s gonna sound stupid as hell, I know but roll with me. It’s easier to raise $2-3 million than it is to raise $20,000. The quick reason is that when you ask a bank for $20,000 they expect you to have great credit and pay it back from your primary job, not your business. The bank may even want you to get a “co-borrower” or “co-signer” if you’re old school.
When you ask for $2 million, the lender is looking at the business or business idea, first to repay the loan. If your business proposition is right, the lender will help you figure out how to make the deal work.
Let’s talk a little bit about how to make you deal work, how to get them to ‘show you the money.’
First, you need to have a great business proposition, more than an idea, a great proposition. I know you’re thinking, it starts with an idea and it does but your idea needs to be vetted, hard, to be able to answer all these questions:
- Can I make money?
- Who is going to buy my ‘shit?’ I use ‘shit’ loving to describe whatever ‘shit’ you’re selling.
Let me digress for a hot second. Would you believe that the FB business model was void of how to “sell it?” It was about user engagement. The selling data and advertising came later. The people that put money in FB got it before Zuckerberg “got it.”
Back to the questions.
- How do I tell people how good my “shit” is?
- Where are the people that are gonna buy my “shit?”
- How do I get my “shit” to those people?
- How much does it cost to either make or buy (for resale) the “shit” I’m trying to sell?
- How much can I sell my “shit” for?
- Is there a ceiling for the amount of “shit” I can sell? So, if you’re a barber, how many heads can you cut per hour, per day, per week? If you’re looking for online users, how many can you get to your site?
- How much money do you need? Why? Will you need more money later?
- How much will you make day1, week1 month 1, year 2? How and why does your business grow?
- Who’s gonna count your money?
- Who’s your lawyer.
The more money you want or need, the more answers you need to have.
Pay attention to this part. Well, pay attention to all of this but with an extra emphasis on this.
You can’t know all the answers, initially. You just can’t. Hell, you might know all the answers to how to make or sell the shit you’re trying to sell. What you gotta realize is that, in order to learn, you must first admit that you don’t know. Stated another way, you can’t learn what you already know.
Look, unless you’re an accountant, you really don’t know accounting. Find an accountant or CPA to help you with your accounting and tax planning l. You’re not gonna know which accountant is a good one so asks for referrals
Unless you’re a lawyer you don’t know shit about the law. You don’t know how to incorporate your boot even if that is the right business structure
This is not a how-to on accounting or the law or marketing or any of that. This is about you knowing your ‘shit’ and getting professionals around you so you have a team to support your business and ultimately, your ‘ask’ for money. When you say, ‘show me the money’ be prepared to ‘show the money people’ your ‘shit.’
I know you’re thinking I haven’t told you anything yet. Hang on.
I knew I was going to be an entrepreneur before I graduated from high school. When I was in college I was learning how I was gonna make that work for me. In my first Finance class, I remember the professor, Dr. Payton F. Roden, to be specific, talking about ‘funding’ businesses. I’m making the exception of using his name because he’s a quasi-public figure and I liked the guy. I remember asking him the same question I’m answering for you now:
If I have a business idea, ‘how do I get the money.’ His answer was, if you have a good business idea, “you can get the money for it.”
That was a fucked-up answer cause it started me thinking that I could get the money for any deal I came up with and I always thought all. my ideas were good business ideas. I did. Hell, I still do.
What his answer didn’t reveal and I’m going to do a piss poor job answering it too. But, in 2019, finding money is a helluva lot easier than it was in 1988, the year I did my first deal. Google is the shit!
My answer is couched around bigger deals, deals that are multimillion-dollar deals but the concept is the same as for a $100,000 deal.
For smaller deals, those are really what’s called, “friends and family” deals. It’s hard as fuck to get ‘friends and family’ to out money in your deal, assuming they must put in. Don’t ask Uncle Bob for $100,000 because you think he has $100,000. He might or he might not. Assuming, you know your shit, start by telling uncle Bob about your shit. Tell him you don’t want his money but you want his opinion, that you want him to poke holes in your shit. Use Uncle Bob to find what you don’t know. Uncle Bob is gonna ask you questions you haven’t thought of. When you’re all done, don’t blow him off cause he “didn’t get it.” Listen to him cause you either didn’t know your shit or you did a piss poor job “selling” your shit or explaining your shit to Uncle Bob.
If you’re trying to do a multimillion-dollar deal, it’s the same approach. Don’t show it to all the people you could show it to; show it to one or two people and get feedback on your ‘shit!’
Generally, banks want to loan money. There are ‘professional’ investors who want to invest in projects. Not all banks lend to all projects. Not all investors, invest in all projects. Banks and investors have niches. You need to find a banker or an investor how will fill your niche.
Remember when I said it’s impossible for you to know everything? Raising money is probably one of those areas for which you don’t know what you are doing. You need to find professionals that can help you. If you have professionals supporting you, an accountant or an attorney, there’s a good chance they can refer you to a professional that can help you raise money. Talk to a lotta people and learn what questions to ask. I know that sounds kinda crazy but I’m not gonna explain. I’ll just repeat it. Talk to a lotta people and learn what questions to ask.
Not this about professionals. They ain’t free. Some are really expensive. Expect to pay them. Don’t lose focus on what you’re trying to do being a cheap ass. If you ain’t got the money, tell them. They may say, ‘oh well’ but if you have your ‘shit’ together, they may help you figure out how to pay for their services. This may be the most important thing I say in this post.
Use the hell out of Google to find banks and investors that have a ‘niche’ in your area of interest.
Let me give you an example.
I’ve been in the wholesale and retail business of selling gasoline and operating convenience stores. I knew banks there were participants in this business when I was in it but those banks have merged with other banks. When I started working on Blue Diamond and got my ‘shit’ together I started looking for banks and ‘professional investors,’ (private equity firms) that have a niche in either fuel services or retail. I Googled, “fuel services banks” and “private equity retail.”
With the banks, I found a couple of banks that really had a ‘fuel services” niche. Chasing down the right person was a pain in the ass but I got em. Keep on my plan is tight. The review document is 110 pages full pictures, numbers, marketing, my profile and history in the business. A lot ‘shit.’ After I got the banks to sign a confidentiality agreement, I sent them this big ass book. Both banks are interested. My objective right now is to keep both talking to me. We’re courting, dating. We haven’t started making out yet but they’re taking my phone calls, calling me and responding to my emails. We’re early in the dating game. They have told me what they need for us to “make out.” I’m working on making my deal look like they want it to look so we can get “hitched.”
Same approach with the private equity firms. I probably sent the deal to 12 firms or so. I have about 8 more on the list that I’m going to wait before I contact them. Why? Cause I identified a firm that has expressed better than ‘lukewarm’ interest. We’re dating. We haven’t ‘made out’ yet but we’re dating.
What does make out look like? Look at my post on Chevron/Texaco.
Before I get to the one that got away, let me make a couple of points
You can get money for your deal. You can get someone to show you the money. Get yourself ready to start dating. Test your ‘shit.’ Have thick skin. Not everybody is gonna like your ‘shit.’ What’s kinda fucked up is that most people won’t tell you the details of why. That’s your job, ask the questions, do the research, put in the work, get your shit together. Raising money ain’t easy. You’re competing with hundreds of thousands of other entrepreneurs. You don’t have to be the cleanest, pretty boy or girl in the bunch, you just better be damn sure you’re not the ugliest.
In the preface, or the “About Us” I think I said, not all deals get done. Not every deal is supposed to get done. Not every deal works. Sometimes, you learning ‘shit’ is more important than getting the deal done
How in the hell did I get in the running to purchase Sunbeam Scales?
My mind always jumps to, “how can I make this a business” or “can I do this and do it well enough to make a living?” When I take a corporate job, my thought only changes slightly. It goes to, “what am I going to learn that I can take away to start or buy a business.” Sometimes it’s, “this will help me transition to where I can start or buy a business.” Sounds like I cheat my “employer? Not really, the “smart” employers take and get the benefit of my experience to improve their organizations. It’s exactly as it’s supposed to be, a mutually beneficial relationship. Other employers are so structured, they don’t get it. They are comfortable doing and thinking the way they have always done and always thought.
When I read, the news, a book, opinion or whatever it might be, It’s always, almost always non-fiction. If I’m reading a business article, my thought is, “shit, I can do that if I had the money.” If I’m reading in the car, the littlest thing can trigger an idea. I would share some but, I still might be able to do them. I need a beach to clear my head sometimes.
The Sunbeam deal came up by me reading an article in the Wall Street Journal. Before Fox bought the Journal, they used to have a lot of great business articles. It’s hard to read the paper anymore because of the “conservative” slant. Anyway, I was reading the WSJ and came across an article about Sunbeam being broken up and sold. This during the late ’90s, at the end of the hyper-corporate-raider period.
Oh, Sunbeam is the company than made or marketing all kinds of consumer products including, irons, blenders, toaster, scales, clocks, thermometers, and all kinds of other shit. Al Dunlap was brought in as the president in the mid to late ’90s to “fix” the company. I don’t remember if Sunbeam had filed bankruptcy or what. Dunlap was a known “fixer” had fixed other companies buy selling them, primarily. I don’t know what his original intentions were for Sunbeam but what he ended up doing was breaking up the business and selling pieces. In the WSJ article I read, Sunbeam was looking for buyers for the scales and “time and thermometers” divisions.
A Big 4 CPA firm was coordinating the sale of the divisions on behalf of Sunbeam. Guess who raised their hand as a prospective buyer? Damn right I did. I found out who to contact, which office of the CPA firm was handling the sale. I called and the “gatekeeper” gave me the “screening questions” to be sure I was a serious buyer. That was an easy test to past. I had “put in the work” and could easily get around those questions. I didn’t have to show my checkbook or anything like that so it was a walk in the park.
I was immediately told that they had a buyer under contract to purchase the thermometer division but due diligence was underway for prospective buyers for the Scales Division. They overnighted me the confidentiality agreement and other docs for me to sign to officially through my hat in the ring. This is process is pretty typical when there is going to be an “official auction” of assets by a company. I call it an auction because that’s what it is. A bunch of people competing to see who can pay the most for assets somebody else doesn’t want. Put a pin right there; I’m going to bring it up again.
Once I got my “boarding pass” documents back to them, they gave me access to an electronic “data room” to begin due diligence. Data rooms are setup for “bidder” with a ton of information about the company/assets that are being sold. It’s financial information, people, customers, facilities, and everything you could imagine. What bidders do is due diligence. You go through everything, things like:
Is this company profitable
If yes, is it sustainable; can you grow it
- What assets are you purchasing? What is the value of the assets, if you need to pledge them as collateral for a loan?
- How do the logistics work? Who are freight carriers?
- What contracts are in place for everything from electricity to maintenance, to landscape to contract labor?
It’s literally everything they could think to provide for you. If there is something you need or want that’s now there, you ask for it. If it’s something that every bidder might want, they will put it in the data room. If it’s something they are still making copies of or finding out about, they will tell you that it will be in the data room at some date in the future. If it is extremely “sensitive” then the bidder will hold it back and will provide it as they “screen out” bidders.
I spent about 2 weeks getting shit outta the data room. I was putting together historical financials in a format that I wanted to see them and that would help me assess value. I put together pro forma financials based on the historical, limiting any aggressive growth cause I didn’t have enough information to know what growth would look like. I made a list of questions about shit that wasn’t in the data room that might be critical to me trying to decide on whether I would make an offer and if so, what that offer might be.
One of the big questions I had, well two of the big questions I had were, what about the people and what about the customers.
On the people’s side, I wanted to know what the organization chart looked like. Who were the key people, like plant managers, marketing, financial people, and supervisors? Who was going to stay? Who was going to retire, if anybody? Who was on disciplinary arrangement? The deal is I didn’t know shit about making scales, not a fucking thing so I wanted to be sure that the scales were going to continue to be made and sold after I bought this plant. There were a lot of critical pieces to the puzzle and I was working my ass off trying to put this shit together. I wanted to grow the business, not reinvent it.
Did I say this plant was in Shubuta Mississippi? SHUBUTA MISSISSIPPI. Look that shit up. I know Mississippi is a state that’s in the middle of nowhere but, Shubuta Mississippi?
The other important thing, I mean critically important thing was, who was buying Sunbeam scales? Who was the competition? Sunbeam is/was a big-ass name in consumer electronics. If there is an electronic machine in your kitchen, there is/was a good chance you had at least one Sunbeam product, maybe more, but at least one Sunbeam.
Just to be clear, there was only one Sunbeam scales manufacturing plant and it was the one located in Shubuta MS, which means that every company that bought Sunbeam scales was buying it from this plant. So, who were the customers? Walmart, Target, CVS and a buncha dollar stores. See who’s missing from the list? Best Buy and back then, Circuit City, Fry’s and a bunch of other grocery stores are other growth opportunities. In the words of Gordon Gekko, from the movie, Wall Street, it had the beginnings of something that might feel, “better than sex.”
Here was a big ass hurdle, I was/am a finance guy. I didn’t know shit about marketing or selling consumer products. To that point in my career, outside of owning a restaurant, I was strictly an accounting, finance guy, good at it but still just a finance guy.
The thing I needed was to build a team and supplement my knowledge and experience to experts in other areas, like marketing and consumer product sales. I needed more than mid-level people, I needed senior people with experience selling shit to the likes of a Walmart or a Target. I’m going to tell you how I solved that problem in just a little bit.
With every one of these “auctions” for companies or assets, there is a set timetable for when initial questions are due, when initial bids are due when contracts for the possible purchase/sale are due, when final offers are due and when the sale will close. It’s normally a pretty structure process and you have to have your shit together otherwise you will get weeded out by not being able to keep up.
This process was kind of goofy. I only know that because I have done this a couple of times since Sunbeam. For the initial or first “bid” we were allowed to give a narrow range of prospective purchase price. There was some other shit that needed to be included with that initial bid but I don’t remember what it was. What I do remember is that I didn’t have to have any kind of letter from any lender and you didn’t have to provide any kind of balance sheet that showed you had the ability to buy. Kinda fucked up but damn that worked out good for me.
If I remember correctly, my initial bid was between $20-25 million. The annual sales for the Scales division were like $50-60 million. The purchase price and annual sales have no relation to each, at least not the way I put the bid together. I put the bid together based on a discounted cash-flow model. A bunch a mumbo jumbo finance shit but I wasn’t throwing numbers off the wall.
I made it to the next round! I was nervous as shit getting to the first round but excited as hell when I got through. There was no way to know how close I was or how my bid stacked up to others.
The next huge hurdle was getting financing. The way I just said that doesn’t’ reflect how big of a fucking hurdle raising money for this deal was. I didn’t have millions of dollars. Hell, I didn’t have hundreds of thousands of dollars. Honestly, I only had about $30-40,000 of real dollars, enough or plane ticket to Shubuta MS.
In the next round of due diligence leading up to the next bid, a plant visit was included. I don’t remember the timing but what I needed to do was chase dollars, chase the equity and debt to raise $20-25 million or more.
While I was doing my analysis to determine my initial bid, I was also building a loan/equity request document. Most of this was information from the data room but I did have to put together pro forma data, and a plan for management and people. The big hole in the “offering document” was how I was going to grow the business. Having this hole didn’t stop me from making some phone calls to people that might be able to help me raise money.
I called a friend who worked for an investment bank. She and had probably known each other a couple of years, may three or so. I met her trying to raise money to pull off the Conoco deal. Here’s kind of an interesting “side note.” The Conoco deal was pending. We have gotten that deal almost done when the Sunbeam deal popped up. My friend didn’t help with the money on that. How we got Conoco done is a completely different story that deserves its own chapter/post, which I will give it. Not digressing but important to mention in passing.
So, I called my friend and told her what I was doing with Sunbeam and where I was in the bidding process and what I needed. I sent her a copy of my offering package, even though it was in draft form. When she got back to me she was as excited as I was. She referred me to a relationship that she had I think was one of her graduate school friends. He had just formed an investment company. His partner was one of the lawyers for Reggie Lewis. Who the fuck is Reggie Lewis you ask?
Reggie Lewis was the first African American billionaire in the US. He made is money as a corporate raider. He bought the Singer Sewing Machine company and later Beatrice International. He was cut out of the mold and came up during the time when Henry Kravis of Kohlberg, Kravis & Roberts was buying RJ Reynolds Tobacco. Beatrice was collateral fallout from the RJ Reynolds transaction. As another side note, the Gordon Gekko character from Wall Street was built around Henry Kravis.
I did digress. Sorry. But, having a lawyer from the Reggie Lewis organization was a huge deal for me; it should have been a big break. More about that later. After we got through the confidentiality agreement and all that that shit, I shared my plan with this new firm. Deal with lawyers can be a fucking pain in the ass. Not gonna digress, again but, damn!
The first thing this new firm did was tell me something I already knew, that I needed a marketing person. Turns out, they had one that they recommended immediately. He was just leaving a consumer products company. I don’t remember which one but I trusted them. They had much to gain but helping put a team together to make this acquisition work. They would earn a big fee if this shit worked so I don’t think they would have done anything to sabotage the plan.
I immediately call this marketing guru and shared what I was looking to do. Made a promise of equity in the deal to be sure he was all in and we went to work. Got him access to the data room and he begins to craft a marketing plan and the information he needed to not only to keep the existing customers, like Walmart but to expand into other stores, like Best Buy, Circuit City, grocery stores, etc. He did a good job and was a great addition to my team to help me learn some shit that I had no way of knowing and not path to gain that knowledge.
He put his part of “our shit” together fast, in a couple of weeks. I scheduled our trip to Shubuta and met him at the airport in New Orleans. He was living somewhere east, like Philadelphia. We met in New Orleans and took a flight to Meridian MS. We had talked on the phone but this was our first face to face and we had to get to know and get comfortable with each other fast, really fast. We were meeting the plant management team as well as the folks from the CPA firm team that was coordinating the sale. We need to present as a united front, as a cohesive team. We pulled that shit off without a hitch.
We pulled it off because it was genuine. I can’t remember the organization where my new-found partner came from. I know I said that before I’m hoping that if I repeat myself I can remember. But, what was clear to me was that he had grown in an organization that had financial discipline. The operations and marketing folks “partnered” with the financial folks in making business decisions. While he stayed in his lane with respect to sales and marketing he asked a lot of questions about the financial impact of his prospective decisions. Let me give a quick example and then I’ll move on.
Walmart was by far the single, largest customer. There were different sales prices for different customers. Walmart had the lowest sales price. Another interesting fact was that there were some differences in the manufacturing process between the Walmart scales and the other scales. Walmart had two different scales, one more generic and one that was a slightly better-looking scale than the generic scale. The “upscale” scale was sold as a Sunbeam scale and the lower quality scale we sold as, well, just a scale. The retail price point was like $2 per scale. The different in manufacturing cost was like $.50 (fifty cents). The price sold to Walmart was damn near the same.
The margin, what we would make on the Walmart scale, was about half of what we made on scales sold to CVS and the dollar stores. For everybody other than Walmart, all the scales were Sunbeam and they looked the same. The price we sold them by varied based on the number of scales they bought. That’s the setup.
So, my new partner wanted to know and understand the margins and if we to market with “new customers” where our price point could be and the impact it would have on the profitability of the company. Not telling me, asking me. I did P&L’s buy customer so we could figure out what we had. What we knew was that Walmart was going to always dictate price. What we both wanted to know was what if we said fuck it to Walmart or how we could make up the thin margin from Walmart with the other customers, particularly, new customers.
What I did was look at Walmart and ask the question, “how much of the overhead of the plant could be absorbed by the Walmart?” I figured if we kept Walmart we could absorb about 60-70% of the plant overhead with the Walmart margin. Our profitability was coming from the other customers and any new customers we added or volume we increased from the customers not named “Walmart” will almost flow directly to the bottom line. That was some powerful shit and formed the basis for us to ask questions of the plant management and staff during out site visit. Exciting shit.
Here’s a side bar. I was referred to as the “investment company” by someone they trusted. I had some credibility coming in the door. The tight plan was probably viewed more favorably because of the referral. The investment company guys were comfortable not only taking me on as a prospective client but also referred a strategic team member/partner to a transaction they barely knew and a person they didn’t know at all. Turns out, we all got it right, almost.
We get to plant and everything went very well. We were very well received. I guess it was not surprising that the plant management was all white and the team from the CPA firm putting the deal together for them were all white. There were black supervisors at the plant, most of the supervisors were black. I mention race cause there were a couple of funny and really fucked up things that happened that were related to race.
We met the plant manager for lunch at a restaurant in Meridian the day of our arrival. The schedule was: we arrived one day, did a plant initial visit that day, and full-fledged plant tour and question and answer session the next day. The 2nd day was pretty much an all-day event. The restaurant wasn’t a restaurant frequented by African-Americans. I don’t know if it was off limits or too expensive or what. We figured this out because as we sit there waiting for the wait staff to join us, I could see them looking out of the kitchen window, no, peeping out of the kitchen window at us. I don’t know how many people were working in the kitchen but noticed them taking turns peeping out of the window. That shit was fucking hilarious.
What was even more fucked up was that when the waiter came to take our order, they guy didn’t look at me and my partner in the face. The waiter was a tall, middle-aged black guy. He would only look at the white guy. It was like he was fucking mad that we were in this “white” restaurant. We ordered and everything was fine but that shit through me off. This wasn’t the last time we would be shocked by our own blackness.
When we got to the plant that afternoon, everybody was fucking shocked that we were black. We almost had a problem getting into the plant because they weren’t expecting two black guys. We kinda had to confirm our ID, twice. We chuckled.
We met with the plant leadership and some key supervisors that afternoon. The supervisors were grinning from ear to ear, happy and proud as fuck to see two black guys were in the mix. The plant workers knew the plant was for sale but we could tell by their faces we were the first African-Americans to show up as prospective buyers.
The tour and meetings the next day were incredibly I eye-opening, at least for me. I have been in other “operating” environments, like refineries, oil fields, offshore oil rigs but I think that was my first manufacturing, plant tour. I learned a lotta shit in the course of 5-6 hours.
The drive from Shubuta to Meridian, where we were to catch our flights back, was about 25-30 minutes. I don’t have to tell you how in the middle of nowhere we were. Have you ever heard of Shubuta? I rest my case. Here is what just blew us the fuck away. The population on the Farm-to-Market road between Shubuta and Meridian was completely African-American. You know the population of Mississippi is almost 40% African-American, right? I think they all lived on the road from Shubuta to Meridian. I am not bullshitting when I say this, when we were driving back, people were either on their porches or in their yards, waiting to waive at us. Every other house we passed, we were greeted with a waive and a smile. I shit you not. We felt kind of weird being celebrities in town for a couple of days.
Back to the deal. After our plant tour and the plant tours of the other prospective bidders were over, we had to submit an actual offer, a firm purchase price. Not a range but a purchase price. We did all our analyses. We verified customers intent to keep the relationship, post sell, including that of Walmart. We also had to provide some background information on who we were and our ability to close. They didn’t want financial statements but they did want to see that financing was possible. Not firm, possible. I was able to get the investment firm to give us kind of an assurance letter, a soft letter that basically said they were working with us.
The offer I put on the table was $20 million. Looking at the financials and where we thought we could take the company in terms of growth, I felt $20 million was safe. The question was, would we be able to make it to the next round.
We made it to round three. Now it was time to raise this fucking money. This was the biggest challenge of my career, so far. I had pretty much gotten the Conoco deal done, pretty much at the same time. Prior to Sunbeam, Conoco was the challenge. Sunbeam was a shitload more money, a bigger operational challenge.
Now that we were still in the game, to get to the next level was going to require commitments from lenders and an equity partner to close. The equity partner was supposed to be the investment firm. I had started conversations with prospective lenders. A couple had a copy of the deal and they were interested in advancing the deal. What they wanted to know was where was the equity coming from and what was the final purchase price going to be. The lender that took the most interest in the deal was CIT.
How did I get to CIT? I read the WSJ a lot and had identified CIT as a lender that did leveraged buyouts. It turns out I didn’t know as much as I needed to know but that was why you hire a professional, right?
The investment firm wanted like a $50,000 retainer to represent me and help me find the equity to close this deal. I didn’t have $50,000. I had about $40,000. They were to raise about $2 million to $3 million then I would borrower the rest. The debt was going to be collateralized with inventory and plant equipment. The State of Mississippi owned the land. I’ll get to that in a minute. But yeah, the State of Mississippi.
I negotiated the investment firm down to $15,000 after a few days. The lawyer, the Reggie Lewis lawyer guy was a complete dick when trying to that retainer number down. I mentioned earlier in the post how you need to pay the professionals. You do, I get it but you need to shop around. Vet the people you’re going to give money to, hard. Referrals are good. That’s where you start, not where you end. I was beginning the start of a lesson that I would carry forward for my next deals. An expensive lessen but a lesson, nonetheless.
Quickly, on the State of Mississippi owning the land the plant was on. Mississippi actually owned the plant. This is not unusual, especially in the South. States on plants or provide a lot of incentives for plants, particularly manufacturing plants to locate in there state. These plants provide jobs and are huge boast for the economies of those states. BMW in South Carolina; Toyota in Texas; Nissan in Tennessee, and yes, Sunbeam in Mississippi.
I didn’t send these guys the money, I took them the money cause I wanted to meet them face to face. They were in New Brunswick NJ. I went to NJ for three days. I wanted to be involved in the funding raising, especially since it was costing me $15,000. I wanted to be sure they were engaged.
The first day they spent doing stuff to get their new office together. I spent the day going to Rutgers and finding places to eat. Kinda of a fucked-up day. It wasn’t my intent to be on vacation. The next day, the morning, the spent brainstorming on “who to call” or putting a “call list” together to solicit on my behalf. The afternoon the spent making phone calls, gaging interest about the deal. Let me digress for a minute.
As I mentioned early, this was the biggest deal I had pursued at this point in my career. I didn’t know really what to expect and didn’t have the confidence to do the dialing for dollars they were engaged in. I thought a couple of things. One, that the had the money in their firm to put I the deal. That wasn’t the case because their firm was just getting started and they hadn’t raised money for their own fund. Second, I thought they would have had the relationships to make this shit work more seamlessly than it appeared. I paid $15,000 for uncertainty. In all honesty, this shitshow was my fault for not being more diligent in the pursuit of vetting this firm. I was being emotional about a deal. More about that in another post. The problem was I was on the clock. I knew I needed financing fast to stay in contention for the acquisition.
That afternoon, they begin making calls. One of the interesting calls they made was to the son of the owner of the Jets. The lawyer guy had a relationship with him and knew he would take his call. For me, it gave me a little rush because I recognized the name and if nothing else, I knew this guy would have the money to make it work if he chose to. Well, the call lasted a few minutes with guy on the other end asking some general due diligence questions like, who I was; how much I was putting in, and how much the lawyer guy’s firm was putting in. The other thing he mentioned was that he didn’t know Sunbeam was being broken up. I could tell from my side of the conversation because the response was something like, ‘yeah, they’re selling off divisions and this is one of the last one’s left,’
Do you know what the answer to that call was? The deal wasn’t big enough. We were only asking for about $3-5 million. A fucking lot of money to me but not for these guys. I got that but it was disappointing.
The rest of the day and the next morning were anti-climactic. No real nibbles or progress. When I left they indicated they would keep chasing money for me. I knew at that very moment I had just blown $15,000.
In addition to being pissed, on the flight back I was trying to figure out who I knew, who I could call and how I could keep this deal moving. Within the next week, I called CIT and sent them the updated deal with our $20 million proposed price, the management team plan and who we were going to expand the business. The cool thing was that CIT got back to me with a term sheet, the proposal under which would lend me $17 million. That was the first big deal sheet I had gotten in my career, obviously. I almost shitted my pants. The deal wasn’t done though because I still needed about $5 million to pull it off.
I had made some relationships in Dallas and knew some people to call. I begin making phone calls, only 2-3 cause I didn’t know that many people that could help but I only needed one, right? The time I had to present evidence of financing was only a few days away, less than a week.
One of the guys I called I knew but the relationship was kinda fresh, less than a year old. He had the relationships to pull it off but not in less than a week. I sent him the plan, he reviewed and we met the next day. His question to me was, “why didn’t you come to me sooner? I probably could have made this work.” I had the debt but couldn’t pull the fucking equity together. What I learned at that point was to fucking trust myself.
What was next was even more exciting and frustrating at the same fucking time.
I called the CPA firm guys and told them that we had the debt financing together but we needed to lower our offer price and the equity was trailing. They asked how much we needed to lower the offer. I pulled some shit outta my ass and said, ‘to $17 million.’ These fuckers said, ‘fine! Send us a letter telling us along with a copy of your term sheet from the lender. You guys are our best offer and we present it to Sunbeam and will be able to probably get you a little more time to get the equity piece together.’ Do you know how that made me feel? I was jumping for fucking joy and at the same time thinking, “how the fuck can I make this shit happen?”
I ain’t gonna lie, I felt like I had won the lottery but couldn’t cash the goddamn check.
The next week was spent calling people I had already talked to including the firm in New Jersey. They were lame as fuck. I told them that we were the last offer standing, that we had the debt, and had lowered our offer. I told them we only needed $5 million to close the deal. These fuckers said they would keep looking. Either they weren’t looking of they weren’t that good at their jobs. The former was true. I think they were good at what the did but they just took me for $15,000.
I called my local friends, no luck. I just didn’t know what else to do or who to call.
After about a week the CPA firm called and asked me how we were coming. I told them it was challenging. They told me to keep pushing and keep them posted. The also said they were pursuing some other options but I was able to pull my pieces together they would be willing to work with me to make our purchase possible. What they were really saying was that they were really saying was, “bye.”
I continued to try to figure out what I was doing but I needed to move forward with my Conoco deal. There was only so much more time I would spend chasing this deal. What a fucked-up mess?
A couple of closing points. What happened with Sunbeam, finally?
What Sunbeam did ultimately, was close to the fucking plant and cut a licensing deal with a company that would make the scales overseas. If you see a Sunbeam scale in the store, it’s being made in, probably China and some US company has a license to use the Sunbeam name.. Disappointing
Remember earlier in this post when I said to be sure your shit is tight? Well, most of my fucking deal was tight. I didn’t know what the fuck I was doing raising money. I just didn’t know, at call. I had a clue but I didn’t know what I was doing. I didn’t have the confidence to do the cold calling and sell my own deal. I didn’t know how to identify investment firms and screen them.
This was a huge missed opportunity for me in my career BUT it was a learning experience that has benefitted me ever since.