Today’s guest post is by Kevin Rhodes, CFO at PlumChoice, Inc. on the topic of raising $25M of equity and venture debt while simultaneously closing an international acquisition…no easy feat but here’s how he did it…
Kevin: To my friend and new investor;
Would your audience be interested in lessons learned from raising $25+ million in debt and equity, while completing an M&A transaction, all at the same time? Perhaps… Well, here is the first lesson I can dole out; don’t do it twice. I’m kidding, of course.
While it does make for an interesting challenge, both in terms of time commitment and resource imbalance, I would highly recommend this process if you are an executive looking to grow your business both organically and inorganically, but need additional capital to do so. Undertaking this task accomplishes two things. First, you can show a tangible use of proceeds, which positions you well when speaking to debt and equity providers. Second, with the right target in your sights, you can enhance your company’s valuation and deal terms by showing the combined results of the companies and a strategy that makes sense.
Let’s dive into both of these areas. When the Founder/CEO and I approached a number of VC firms, they really liked our story and our prospects. While some felt that our market was a little early or that the acquisition strategy was a little too risky, that is to be expected. We did, however, generate three very solid term sheets from both insiders and outsiders, proving that our strategy was compelling. Why? We showed the synergies of both companies combined together and convinced the “would be investors” that the target company would enhance our ability to differentiate services in the market and drive a new business unit, a Software Platform business unit, that would provide us with a significant edge over many of our competitors and provide higher exit multiples in the long run. The downside, and there was a downside, was the timeframe to get both the financing and the acquisition complete and the dependencies that each had upon the other. Needless to say, completing both activities, in tandem, was very stressful. It was like watching a ticking time bomb. Each day that passed, we got closer to the end of the lock up period for the target acquisition, but didn’t have the financing complete to consummate it. While we kept our cool, our success can be attributed to two things: Preparation & using the Right Advisors.
Our story is a simple one, be prepared and don’t take on too much yourself. To put things in perspective, we had to generate investor interest on both coasts, conduct diligence on the target company, while having to support due diligence by our potential new and existing investors as well. The investor road show was a great learning experience. Here is the first piece of advice I will offer; hire an outside IR firm to help you with your message and IR deck (we used Tim Dolan from ICR). Your IR deck needs to include certain slides and it has to grab your audience quickly. Getting an outsider’s view of your IR deck can be invaluable and save you a lot of time and frustration. They can also help you with positioning your company for a higher valuation (which means less dilution to common holders). I can’t emphasize enough, you cannot skip this step.
In terms of due diligence on the target company, I reached out for professional assistance. We used the PwC transactions group to help with the target financial and HR due diligence, which was extremely helpful. We conducted all other aspects of due diligence with our management team. We also had outstanding transactional lawyers at Goodwin Proctor, led by Ken Gordon. The key there, having two legal teams. One focused on the M&A transaction and the other, focused on the financing. Both were instrumental. Lesson learned: Have legal counsel with deep bench strength and other advisors to help you through the process. As for the financing due diligence, we used our internal finance resources to populate our own data room very early in the process and created our internal data room using RR Donnelly’s data room, called Venue.
In conclusion, we were really happy to pull the financing round together, while completing the acquisition. It took some maneuvering and fancy footwork, on behalf of the company, our advisors and our new and existing investors to get it done on time, but in the end it was worth it. It’s now been 30 days post the transactions being complete and the acquisition is paying dividends already. Our industry is excited about our new round of financing and our newly acquired company, named Tific. I’d like to thank you and your team for having confidence in our company, our management team and in our strategy. We are happy to have Eastward Capital as a part of the PlumChoice family.
Kevin Rhodes, CFO