Strategic Acquisition

The Situation:
The owner-operators of a business wished to vertically integrate their company by acquiring a critical supplier, allowing the company to secure its source of a vital input and capture the profit margin earned on its purchases of the vendor’s products. The owners had negotiated a letter-of-intent to buy the supplier at a value they believed was very attractive.

The Company:
The business was a provider of harsh-environment cleaning reclamation services to the petrochemical processing and energy production industries. The company specialized in cleaning large-scale petrochemical storage tanks in an environmentally responsible manner, and recycling the effluents to capture valuable hydrocarbons.

The Funding Request:
The manager-owners required funding to consummate the acquisition of the vendor while minimizing equity dilution, as well as limiting debt-service costs since the business is project-oriented and prone to having large swings in working capital.

The Solution:
Peninsula Capital considered management’s goals and researched the working capital cycles of the business to better understand the capital base required to effectively manage the business. The solution was a round of subordinated debt with both a current and deferred interest component, which limited the debt-servicing obligations and raised the fixed rate-of-return on the loan so that the required equity warrant, hence dilution, could be less.

President’s comments about working With Peninsula Capital Partners:

Why did you select Peninsula Capital to be your financial partner on this transaction?
“When interviewing prospective financial partners, Peninsula immediately distinguished themselves as a professional firm while simultaneously impressing us with their genuine interest in the success of our venture on a very personal level. Their lead partner was the primary driver pre-transaction and remained with us through the end of Peninsula’s involvement almost seven years later.”

What was Peninsula Capital like to work with prior to closing the transaction?
“Once we selected Peninsula to lead us through the transaction, they immediately engaged at the partner level and began to actually travel with us and inspect various projects located around the U.S. in order to improve their understanding of our business and its operating paradigm. This level of engagement at the organic level further strengthened our belief that we had made the right decision in choosing our financing partner. In addition, Peninsula fully lived up to its original proposed investment terms and led us to a successful closing.”

What was Peninsula Capital like to work with after closing the transaction?
“Our experience working with Peninsula throughout our seven-year relationship was marked by constant two-way communication which served us well, particularly during the economic downturn of 2008. The Peninsula partner responsible for our relationship was a strong sounding board for business ideas and opportunities throughout the tenure of our firms’ involvement. Indeed, he was as valued as any other board member in our firm. Our day-to-day dealings with Peninsula were smooth, supportive and accommodating. As we approached, and during the process of, retiring our debt to Peninsula, they were as reasonable, helpful and fair as they were during the beginning of the process. Should we have similar financial needs in the future, Peninsula would be my first call.”