Mergers & Acquisitions. Part 5, CLOSING WITH CREATIVE CURRENCY

Richard Ramis, AYS Dispatch, Inc.

Our final chapter in this series deals with the one commodity that makes everything fit. That commodity is cash. Or possibly, the lack thereof.

Typically, every seller wants miracle money, they believe hard work and passion have value. The problem is most buyers are out to steal and then seal the deal and your average buyer likely could have no money, limited money or possibly inadequate credit.

This causes a rift because the one thing both sides do have in common is an incredible desire. One is the desire to get the hell out, the other is the desire to jump in.

In the buying and selling game, overly aggressive buyers usually have no money and overly aggressive sellers usually have overpriced their goods. However, there are ways to tweak the financial dynamics to remedy two parties otherwise financially incompatible positions.

As an example, take a 2013 Lincoln black MKT with 150,000 miles:
KBB lists it’s trade in value at $5394.00
I found one sold on EBAY with 162,000 miles for $6106.00
KBB list the private party value at $7932.00

Now if I found a buyer who really wanted to become an owner operator with aspirations of future limousine mogul status and this person did not have two quarters to rub together I could offer him this car, with financing and even throw in $52,000.00 in minimum annual pre-commissionable farm out runs.

Now that 2013 MKT is worth $15,500.00.

It is no different with the Airline Industry. Their landing slots and routes are where the majority of their corporate value lays. Creative financing is the key, legally exploit one’s passion going left while dodging the other sides through financial loopholes going right.

Another great tool when both parties are too far apart is the reverse pay sale. The selling party has a 1.5 million dollar gross operation. He wants $450k cash but will only talk terms with 100k down. Offer him $475K with no money down. You take it, combine it, absorb it as you see fit. However, you allow the seller to continue doing all billing. Now the burden of payment is reversed. You work out the ownership schedule where every month a slightly larger piece gets sent to you and you slowly start to assume a larger portion of the company monthly.

Another unique concept is being a silent partner with your vehicle dealer. Vehicle dealerships have a unique financing option called Floor Plan Financing. Whenever you see a car lot or dealership stocked with cars they are usually financed through this instrument. Now since the majority of saleable services are heavily equipment based, you partner with a dealer who will purchase the fleet on your behalf and you route that money to the seller to complete or down-stroke the deal.

This program is not as easy as just described. You obviously need a prior relationship with this dealer because you have to overtly help him liquidate his investment. You should also in your promise guarantee him in excess of 100% return as a courtesy to prep for the next deal.

In a hypothetical situation, if Larry the Limo passes the dealer’s lot and sees the 6 cars sitting there and he offers him 105% cash and carry. You just scored huge. On the other hand, if he offered him 90% of his initial investment and that left you on the hook for 5,10 or even 15K I would green light the deal and be on the hook. 15K and you own 1.5 million in annual revenue sounds good to me.

It reminds me of a great story, years ago a friend needed a front clip for his 84 stretch Lincoln. He calls around and finds out one guy had a buyer for a rear clip. He calls his dealer and the had a older moldy stretch sitting around with more miles then the space shuttle. A week later the front clip went to the city, the rear clip went to the suburbs. The back door glass cashed out on Ebay and the rest fetched $240.00 in iron weight at the smelter.

Think outside the box, be creative. Whether you run it, sell it, or part it out. Liquidation is major player in this game. From vehicles to office furniture.

Buying or selling is the art of compromise.

And remember when you hit 2nd base start looking for your next target. When you hit third base have lunch with your future target and get serious.

Acquisition or disposition is not a one size fits all process but once you master it, run with it.

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