Anonymous
timer Asked: Apr 13th, 2020

Question Description

It is time to earn your money and help us with our financing. This is why we brought you in as a financial consultant. We have received three offers for financing, but we are not sure which offer is the best option. This is where you come in. Review all three offers, then write your final memo to the CEO. To help you make your decision, we have provided the offer and the corresponding balance sheet.

Choose one (1) of the three financing deals being offered to Cougar Doors and articulate the financing deal Cougar Doors should pursue. Be detailed and substantially justify your position. Also, please be detailed why you did not choose the other two deals.

  1. Asset Based Lender
  2. Traditional Business Bank
  3. Private Equity Firm

Unformatted Attachment Preview

Offer 1: Asset Based Lender Cougar Doors has been offered a term sheet from Wise Guys Lending Partners (Wise Guys), an Asset Based Lender (ABL), from New York, New York. Wise Guys has been in business for 33 years and structured more than 1,200 deals over $500,000,000. Wise Guys are financially solvent and senior management has been in place for over 15 years. The deal has been offered in the form of a receivable-based financing at $12,000,000 for Cougar Doors to acquire a competitor in the commercial door business. Cougar Doors wants to acquire Doors Unlimited, a 50-year old business, based in Tampa, Florida. Doors Unlimited is a healthy company with more than $6,000,000 in annual revenues and $1,250,000 in EBITDA. Wise guys will fund Cougar Doors in $12,000,000 in cash to make its acquisition. After that, the deal will require Cougar Doors to pay 100% of its accounts receivable each month to a lock box company, All Tapped Out Collections (ATO), which will manage the collections for Wise Guys. The accounts receivable will be placed into a unique account where ATO will sweep the account monthly. Cougar Doors will keep fifty cents on the dollar. The term of the deal is 10 years. Wise Guys are also asking for a 6% equity stake in Cougar Doors, which can be converted to debt in five years. Wise Guys have placed a covenant in the deal that if Cougar Doors revenue and/or EBITDA drop below $10,000,000 and $1,500,000, respectively, the equity stake will ratchet up to 15%, thereby giving Wise Guys are majority stake in the company and a seat on the Board of Directors of Cougar Doors. Cougar Doors Balance Sheet PROJECTED Year ending Year ending Year ending 12/31/2016 12/31/2015 12/31/2014 ($ in thousands ($ of in dollars) thousands of dollars) Assets Current Assets Cash Marketable Securities Accounts Receivable Inventories Total Current Assets Long-Term Assets Property & Equipment at cost Less Accumulated Depreciation Net Property & Equipment Total Long-Term Assets TOTAL ASSETS $ 3,490,768 $ 4,956,432 1,225,000 1,225,000 6,567,213 4,754,678 231,445 345,213 11,514,426 11,281,323 4,310,000 870,000 3,440,000 3,440,000 $ 14,954,426 4,310,000 870,000 3,440,000 3,440,000 $ 14,721,323 $ 5,438,767 1,800,000 3,907,647 156,324 11,302,738 4,310,000 980,000 3,330,000 3,330,000 $ 14,632,738 Liabilities Current Liabilities Accounts Payable Notes Payable @ 10% Taxes Payable Other Current Liabilities Current Portion of Longterm Debt Total Current Liabilities Long-Term Liabilities Mortgage Bonds @ 9.58% Total Long-Term Liabilities TOTAL LIABILITIES $ 5,403,982 $ 5,403,982 3,250,000 2,500,000 3,200,000 3,200,000 1,750,000 1,250,000 850,000 650,000 14,453,982 13,003,982 1,150,000 1,150,000 $ 15,603,982 1,150,000 1,150,000 $ 14,153,982 $ 4,908,321 2,500,000 3,200,000 1,250,000 650,000 12,508,321 950,000 950,000 $ 13,458,321 Equity Common Stock Paid in Capital in excess of par value Retained Earnings $ 1,500,000 $ 1,500,000 1,000,000 1,000,000 983,214 983,214 $ 1,500,000 1,000,000 898,732 TOTAL EQUITY $ 3,483,214 $ 3,483,214 $ 3,398,732 Income Statement Year ending 12/31/2015 ($ in thousands of dollars) Revenues Gross Sales Revenues Allowance for Sales Returned Net Sales Revenues TOTAL SALES Year ending 12/31/2015 Year ending 12/31/2014 $ 10,467,534 $ 11,674,325 210,987 235,432 10,256,547 11,438,893 $ 10,990,658 345,130 10,645,528 10,256,547 11,438,893 10,645,528 8,135,890 7,180,765 5,438,907 2,120,657 4,258,128 5,206,621 980,789 1,890,554 2,871,343 997,672 1,654,310 2,651,982 1,890,764 1,543,190 3,433,954 -750,686 1,606,146 1,772,667 127,653 25,432 153,085 127,653 25,432 153,085 128,769 27,654 156,423 -903,771 1,453,061 1,616,244 3,344 3,344 3,344 -907,115 1,449,717 1,612,900 Expenses Cost of Goods Sold Gross Profits Operating Expenses: Selling & Marketing General Administrative Total Operating Expenses Operating Income Interest Expenses: Interest on Loans Interest on Mortgage Bonds Total Interest Expenses Earnings Before Taxes Federal & State Taxes @ 40% NET INCOME Year ending 12/31/2013 Year ending 12/31/2012 $ 4,321,098 1,800,000 3,465,907 236,743 9,823,748 $ 2,090,897 1,800,000 2,589,846 154,389 6,635,132 4,310,000 1,140,000 3,170,000 3,170,000 4,310,000 1,140,000 3,170,000 3,170,000 $ 12,993,748 $ 9,805,132 $ 2,891,743 2,500,000 3,200,000 1,250,000 800,000 10,641,743 $ 2,368,901 2,500,000 3,200,000 1,250,000 800,000 10,118,901 950,000 950,000 950,000 950,000 $ 11,591,743 $ 11,068,901 $ 1,500,000 1,000,000 850,935 $ 1,500,000 1,000,000 978,310 $ 3,350,935 $ 3,478,310 Year ending 12/31/2013 Year ending 12/31/2012 $ 10,984,247 764,890 10,219,357 $ 9,083,450 570,432 8,513,018 10,219,357 8,513,018 6,421,568 3,541,809 3,797,789 4,971,209 990,658 1,483,240 2,473,898 1,452,349 1,354,780 2,807,129 1,323,891 2,164,080 126,541 26,547 153,088 128,903 25,431 154,334 1,170,803 2,009,746 3,344 3,344 1,167,459 2,006,402 Offer 2: Traditional Business Bank Cougar Doors has been offered a term sheet from Main Street Bank (MSB), community bank, which Cougar Doors has an existing relationship with for approximately 30 years. MSB is a small, rural community bank in good financial health. MSB has a long-term relationship with Cougar Doors and recognizes they are a major employer in town and wants to support a local business. MSB has offered Cougar Doors $12,000,000 to acquire a competitor in the commercial door business. Cougar Doors wants to acquire Doors Unlimited, a 50-year old business, based in Tampa, Florida. Doors Unlimited is a healthy company with more than $6,000,000 in annual revenues and $1,250,000 in EBITDA. The deal is structured as a loan at 10% over 30 years. MSB’s deal of 10% is at the going rate for this type of transaction and no other bank has made an offer, despite Cougar pitching this deal. MSB has placed a few loan covenants on this transaction. 1. MSB is preventing mergers or acquisitions without permission. 2. MSB is restricting or forbidding distributions and/or dividends paid to shareholders. 3. MSB is preventing investment in capital equipment, real estate or other businesses without separate permission. 4. MSB reserves the right to approve any future business deals outside the State of Missouri. If any of these covenants are tripped, MSB has the right to restructure the deal with more covenants or force the company to repay the loan in full. Cougar Doors Balance Sheet PROJECTED Year ending Year ending Year ending 12/31/2016 12/31/2015 12/31/2014 ($ in thousands of($dollars) in thousands of dollars) Assets Current Assets Cash Marketable Securities Accounts Receivable Inventories Total Current Assets $ Long-Term Assets Property & Equipment at cost Less Accumulated Depreciation Net Property & Equipment Total Long-Term Assets TOTAL ASSETS 3.490.768 $ 2.093.450 1.225.000 1.225.000 6.567.213 678.564 231.445 231.445 11.514.426 4.228.459 4.310.000 870.000 3.440.000 3.440.000 $ 14.954.426 1.000.000 870.000 130.000 130.000 $ 4.358.459 $ 3.245.321 1.800.000 678.657 156.324 5.880.302 1.000.000 980.000 20.000 20.000 $ 5.900.302 Liabilities Current Liabilities Accounts Payable Notes Payable @ 10% Taxes Payable Other Current Liabilities Current Portion of Longterm Debt Total Current Liabilities $ Long-Term Liabilities Mortgage Bonds @ 9.58% Total Long-Term Liabilities TOTAL LIABILITIES 5.403.982 $ 3.250.000 3.250.000 5.000.000 3.200.000 3.200.000 1.750.000 6.000.000 850.000 650.000 14.453.982 18.100.000 1.150.000 1.150.000 $ 15.603.982 1.150.000 1.150.000 $ 19.250.000 $ 2.250.000 5.000.000 3.200.000 4.500.000 650.000 15.600.000 950.000 950.000 $ 16.550.000 Equity Common Stock Paid in Capital in excess of par value Retained Earnings $ 1.500.000 $ 1.500.000 1.000.000 1.000.000 983.214 983.214 $ 1.500.000 1.000.000 898.732 TOTAL EQUITY $ 3.483.214 $ 3.483.214 $ 3.398.732 Income Statement Year ending 12/31/2015 ($ in thousands of dollars) Revenues Gross Sales Revenues Allowance for Sales Returned Net Sales Revenues TOTAL SALES $ Year ending 12/31/2015 Year ending 12/31/2014 10.467.534 $ 11.674.325 210.987 235.432 10.256.547 11.438.893 $ 10.990.658 345.130 10.645.528 10.256.547 11.438.893 10.645.528 8.135.890 7.180.765 5.438.907 2.120.657 4.258.128 5.206.621 980.789 1.890.554 2.871.343 997.672 1.654.310 2.651.982 1.890.764 1.543.190 3.433.954 -750.686 1.606.146 1.772.667 127.653 25.432 153.085 127.653 25.432 153.085 128.769 27.654 156.423 -903.771 1.453.061 1.616.244 3.344 3.344 3.344 -907.115 1.449.717 1.612.900 Expenses Cost of Goods Sold Gross Profits Operating Expenses: Selling & Marketing General Administrative Total Operating Expenses Operating Income Interest Expenses: Interest on Loans Interest on Mortgage Bonds Total Interest Expenses Earnings Before Taxes Federal & State Taxes @ 40% NET INCOME Year ending 12/31/2013 Year ending 12/31/2012 $ 1.987.658 1.800.000 342.324 236.743 4.366.725 $ 2.090.897 1.800.000 132.456 154.389 4.177.742 1.000.000 1.140.000 -140.000 -140.000 1.000.000 1.140.000 -140.000 -140.000 $ 4.226.725 $ 4.037.742 $ 1.250.000 5.000.000 3.200.000 3.250.000 800.000 13.500.000 $ 1.000.000 5.000.000 3.200.000 2.500.000 800.000 12.500.000 950.000 950.000 950.000 950.000 $ 14.450.000 $ 13.450.000 $ 1.500.000 1.000.000 850.935 $ 1.500.000 1.000.000 978.310 $ 3.350.935 $ 3.478.310 Year ending 12/31/2013 Year ending 12/31/2012 $ 10.984.247 764.890 10.219.357 $ 9.083.450 570.432 8.513.018 10.219.357 8.513.018 6.421.568 3.541.809 3.797.789 4.971.209 990.658 1.483.240 2.473.898 1.452.349 1.354.780 2.807.129 1.323.891 2.164.080 126.541 26.547 153.088 128.903 25.431 154.334 1.170.803 2.009.746 3.344 3.344 1.167.459 2.006.402 Offer 3: Private Equity Financing Cougar Doors has been offered a term sheet from Ivy League Venture Partners III (Ivy), SBIC, a Small Business Investment Company (SBIC), licensed and governed by the U.S. Small Business Administration (SBA). Ivy is a private equity firm specializing in leveraged buyouts, recapitalizations, management buyouts, growth equity, and generational ownership changes. Ivy is in its third successful SBIC fund, which is a subsidiary of Ivy Venture Partners, and over one billion dollars under management. Ivy has offered Cougar Doors $12,000,000 to acquire a competitor in the commercial door business. Cougar Doors wants to acquire Doors Unlimited, a 50-year old business, based in Tampa, Florida. Doors Unlimited is a healthy company with more than $6,000,000 in annual revenues and $1,250,000 in EBITDA. The deal is structured like a traditional private equity deal. Of the $12,000,000, Ivy will fund the deal in three tranches: (1) with $6,000,000 of equity (cash) for a 50% preferred stock stake in Cougar Doors. (2) $3,000,000 will be in the form of subordinated debt, which will mature in five years, and have an interest rate of 12%, paid in monthly payments. (3) $3,000,000 will be in the form of convertible debt of Cougar Doors, which has a future conversion date to equity. With a 50% equity stake in the company, Ivy will have two seats on the Board of Directors, and will place their own Chief Financial Officer at Cougar Doors. Ivy did not place any negative covenants on the deal. ...
Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool's honor code & terms of service.

This question has not been answered.

Create a free account to get help with this and any other question!

Similar Questions
Related Tags

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors