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More About This Title The Handbook of Financing Growth, Second Edition: Strategies, Capital Structure, and M&A Transactions
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The Second Edition of The Handbook of Financing Growth has been designed to help leaders and advisors gain a solid understanding of the financing strategies, sources, and transactions that will allow them to excel in such an unpredictable environment.
Written by an experienced group of practitioners who operate within this dynamic market—and fully updated to reflect new market realities—this reliable resource outlines the full spectrum of funding alternatives currently available to emerging growth and middle-market companies and presents the practical strategies and techniques you need to be aware of when considering the capitalization, growth, or sale of your, or your client's, company.
New material found in this Second Edition includes detailed discussions of positioning a business for value creation before the transaction and how your financing strategy fits into the overall plan for growing and raising capital as well as creating an exit. Among various techniques, the authors address buyouts and recapitalizations as two alternatives to create shareholder liquidity and potentially finance future growth. A new chapter on M&A addresses the acquisition process and how to fund acquisitions and external growth initiatives, while additional case studies highlight bank financing alternatives and growth equity.
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KENNETH H. MARKS is the founder and Managing Partner of High Rock Partners, Inc. He has been involved as a manager, advisor, and board member with over two dozen emerging growth and middle-market companies. Marks was a member of the Young Presidents' Organization (YPO) while growing his first company. He teaches in executive programs at Loyola University Chicago and North Carolina State University.
LARRY E. ROBBINS is a founding partner of Wyrick Robbins Yates & Ponton LLP, a premier law firm located in North Carolina. He is a leading attorney in North Carolina middle-market financing and M&A transactions. Robbins received his BA, MBA, and JD from the University of North Carolina at Chapel Hill.
GONZALO FERNÁNDEZ is a partner with High Rock Partners, Inc. and a retired vice president and controller of ITT's telecom business in Raleigh, North Carolina. He received a BA in accounting from Havana University, Cuba, and wrote the book, Estados Financieros (Financial Statements, Third Edition).
JOHN P. FUNKHOUSER has been a partner with two venture capital funds and operated as chief executive officer of four companies in a variety of industries. He worked in commercial banking with Chemical Bank of New York, in investment banking with Wheat First Securities, Inc., and in venture capital with Hillcrest Group.
D.L. WILLIAMS is a managing partner of High Rock Partners, Inc. As a CEO for over twenty-five years, he led three global manufacturing/technology companies through major transitions—two of which he led the buyout of, working with private equity firms. As an advisor, he has worked with companies in numerous industries on growth, operational, and turnaround strategies to create value and implement change. Williams obtained his MBA from the Kenan-Flagler Business School at the University of North Carolina in Chapel Hill.
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Preface xv
Acknowledgments xxi
About the Authors xxiii
PART I The Financing Process 1
CHAPTER 1 Introduction 3
CHAPTER 2 Planning and Alignment (Begin with the End in Mind) 7
An Overview of the Planning Process 8
Strategic Planning 10
Updated Forecast 27
Business Valuation 27
CHAPTER 3 Acquisitions, Recapitalizations, and Exits 37
Acquisitions 37
Selling the Company, Creating Shareholder Liquidity 41
CHAPTER 4 Capital Structure and Financing Strategy 45
Assimilating the Drivers 49
Developing Liability Limits 63
CHAPTER 5 Sources of Capital and What to Expect 69
Bootstrapping Sources and Techniques 72
Individual Investors (Private Placements Not from Angels or Institutions) 82
Angel Investors 83
Commercial Banks 95
Asset-Based Lenders 100
Commercial Finance Companies 115
Leasing Companies 116
Private Equity 119
Venture Capital Funds 122
Mezzanine Funds 152
Buyout Funds 157
Hedge Funds 164
Strategic or Industry Investors—Corporate Venture Capital 166
Merchant Banks 168
Community Development Initiatives and Government Agencies 169
Micro-cap Public Entities 193
Royalty Financing 196
CHAPTER 6 Equity and Debt Financings: Documentation and Regulatory Sources of Capital and What to Expect 203
Basic Definition of Debt and Equity 203
Debt Instruments 206
Loan Documentation 212
Equity Instruments 260
Equity Investment Documentation 264
Compliance with Securities Laws 292
CHAPTER 7 Expert Support—The Players and Their Roles 301
Counsel 301
Board of Directors 303
Investment Bankers 306
Accountants 312
Consultants/Advisers 315
Summary 317
CHAPTER 8 Closing the Deal 319
Process Check-In 319
Final Perspective 326
PART TWO Case Studies 329
CASE STUDY 1 Asset-Based Lender, Receivables Financing 332
CASE STUDY 2 Asset-Based Lender, High-Risk Loan 336
CASE STUDY 3 Asset-Based Lender, Assignment for Benefit of Creditors 339
CASE STUDY 4 Asset-Based Lender, Acquisition 344
CASE STUDY 5 Asset-Based Lender, Turnaround Funding 348
CASE STUDY 6 Asset-Based Lender, Growth Financing 352
CASE STUDY 7 Commercial Finance, Trade Financing 356
CASE STUDY 8 Angel Investor, Initial Funding and Sale of Company 359
CASE STUDY 9 Venture Capital, Early Stage Growth Equity 362
CASE STUDY 10 Royalty Financing 365
CASE STUDY 11 Venture Capital, Growth Equity 367
CASE STUDY 12 Community Development Finance, Growth Funding 370
CASE STUDY 13 Debt with Revenue Sharing 375
CASE STUDY 14 Mezzanine Investment 377
CASE STUDY 15 Private Equity, Acquisition through Exit 378
CASE STUDY 16 Private Equity, Management Buyout/Partner Exit 380
CASE STUDY 17 Private Equity, Restructuring 382
CASE STUDY 18 Private Equity, Acquisition with Management Participation 385
CASE STUDY 19 Private Equity, Public to Private Transaction 388
CASE STUDY 20 Private Equity, Buy-and-Build Strategy 393
PART THREE Financing Source Directory 397
Suggested Use of the Directory Section 399
APPENDIX A Corporate Finance Primer 523
APPENDIX B Financial Statements 551
APPENDIX C Discount Rates 563
APPENDIX D How Fast Can Your Company Afford to Grow? 567
APPENDIX E Notes about Start-Ups 583
APPENDIX F Accounting Principles—GAAP and IFRS 587
Glossary 591
Notes 623
Index 633
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—Marilyn J. Holt, Founder of Holt Capital,
