FocalPoint preserved Resolution Economics's upside potential while securing financial resources to fund the Company's expansion plans.
Transaction
Resolution Economics LLC ("ResEcon"), a pre-eminent expert witness and consulting company, provides economic and statistical analysis, information collection, and data mining related to class action employment disputes within growing areas such as wage and hour, and race/gender/age discrimination cases.
The owners of the firm wanted to raise financing to fund the firm's rapid growth and also to "take some chips off the table."
Deal Challenges
The owners did not wish to suffer much equity dilution. Moreover, the firm had limited debt capacity based on traditional banking collateral; the primary asset was human capital.
Financing a "dividend recap," whereby debt is raised to fund a shareholder dividend, was challenging in light of a credit crunch brought on by the subprime meltdown.
The owners did not want to personally guarantee the debt and wanted favorable repayment terms so that cash flow could be used to grow the business rather than repay debt.
Solution
FocalPoint was able to create value throughout the transaction process by:
- Effectively communicating key value drivers in a compelling offering memorandum
- Seeking out a universe of qualified investors who understood the nature of "service businesses"
- Running a competitive process to obtain the best terms
- Maintaining a high level of confidentiality throughout the process
- Driving a tight time frame and effectively leveraging management's time so that they could focus on running the business at a time when a "hiccup" could jeopardize a transaction
The owners ultimately chose to recapitalize the company with Praesidian Capital, a provider of mezzanine debt for middle market companies in the United States, thereby preserving ResEcon's future upside potential and gaining the financial resources needed to fund the Company's expansion plans.
The owners were able to achieve their goals (i.e. taking some "chips off the table," maintaining financial flexibility to fund the firm's continued growth, and avoiding personal guarantees) without suffering significant equity dilution.