GUIDED OUR CLIENT TO THE FINISH LINE AS THEIR ACQUISITION HIT A SNAG
As our Client’s stock-for-stock acquisition of a strategic technology platform seeded by Qualcomm Ventures was nearing a close, the process hit a snag. The target’s Management team and its creditor, Silicon Valley Bank (SVB), wanted to examine pro forma financial projections to order to assess our Client’s ability to service the debt. We assembled a thoughtful and defensible forecast that alleviate the target and its bank’s concerns, helping our Client close the deal.
Identified all the hot button issues and got stakeholders comfortable with our Client’s business model and debt service capacity
Our Client was a full-stack ad technology firm serving conglomerates in the mobile channel. Their technological capabilities enabled them to be a one-stop shop for household media names looking to build presence in the out-of-home channel. With the subject acquisition, our Client would further improve their data offerings.
Being brought in at the eleventh hour meant Heritage had to swiftly come up to speed and learn the fundamentals of the business, along with the nuances of the deal. Given the shortened timeline and the opportunity cost of losing the acquisition, our role required fast action with some deal finesse to instill confidence in our Client and their counterparts that we could get the job done.
Heritage quickly dialed into the Client’s and the target’s business models, examining their contracts, customer mix, and pricing arrangements. We examined the most instrumental drivers of revenues and costs. Within two days, Heritage produced a fully dynamic 3-statement model that outlined the cash flows of the pro forma company, and its ability to service the debt, alleviating SVB’s concerns. SVB and the target’s board of directors subsequently approved the transaction and it closed two weeks after Heritage’s direct involvement.
LOW-COST BANK DEBT FOR START-UP TO REFINANCE VENTURE DEBT
Though many venture debt firms thought our Client was too early and didn’t have the institutional equity to support a traditional venture loan, we ultimately found the right partner for our Client and secured a bank loan that was low cost and warrant-free, with light covenants.
A vast network of capital providers allowed us to conduct a placement process that ensured we left no stone uncovered for our Client
Our Client was a data analytics and competitive intelligence firm serving both demand side platforms and sell side platforms in the adtech space. They had grown their book of business organically through some key customer wins and wanted to scale the business at a robust but manageable pace with additional capital.
Over a year had elapsed since the last round of institutional equity, rendering the deal difficult for the traditional venture loan model. Our Client’s ARR was high quality but still modest to attract the likes of the larger middle market lenders. We realize we had to position the story differently than the typical venture debt deal in order to attract interest.
Heritage found the perfect capital partner in the form of a national bank that was building out its technology lending group and had a “middle-market” mindset they would apply to the underwriting. We demonstrated the low churn, high value of our Client’s revenue base to the bank. We negotiated a variant to the traditional EBITDA covenant and illustrated our Client’s clear ability to meet the covenant. Heritage was able to deliver a low-cost, warrant-free, middle-market solution to our start-up Client.
INTERWEAVING CUSTOMER LIFETIME ECONOMICS INTO A DETAILED OPERATING MODEL
Heritage built a complex customer lifetime value model stitching together hundreds of thousands of records from three disparate databases to derive a clean and holistic lifetime value model. We integrated the model into a detailed line-by-line operating model that was ultimately expanded into a 3-statement model. The engagement required us to enter extended discussions with the Client’s salespeople, lead generation staff, and head of IT.
There was a wealth of customer data points, however, it resided in three distinct repositories, making it difficult to map one holistic view of their customer lifecycle
Our Client was a private-equity backed credit repair company. The company assisted consumers in rehabilitation their credit scores and removing derogatories from their credit report. They were competing against the 800-lb gorilla in the industry and needed to better understand the unit economics of their customer’s value in order to gain market share.
Over 5 years of customer, lead generation, and purchase transaction data existed across the Client’s CRM, accounting, and lead generation platforms. Our role would be to map together hundreds of thousands of data points to assemble a holistic view of the how much revenue each customer brought in, the average lifetime duration, when most income was generated per customer, breakeven points, ROIs, and costs that would be incurred to serve each customer. Once the customer lifetime value was accurately constructed, the Client required it to be integrated into a detailed operating model that would support a five year plan.
Our team realized this engagement required us to dive much deeper than the traditional forecasting exercise. Prior to building a conventional operating forecast, Heritage spent a large amount of time with the department heads of our Client’s firm tracing the source of data so we could accurately map the customer lifetime. We spent the first week of our engagement fine-tuning the CPL / CPA assumptions and analyzing 14 different lead generation channels. The next week entailed examining salespeople’s calling patterns, and the third week entailed distilling appropriate purchase data. This preparation work ultimately allowed Heritage to derive an accurate portrayal of the customer’s longevity, associated per customer revenue, and per unit costs.
ACQUISITION FINANCE FOR AN INTERNATIONAL BUYER
Heritage produced termsheets for our Client, a UK industrial conglomerate looking to acquire a distressed target in the US Given the disparity in the buyer’s location and the target’s headquarters in the US, neither a US nor UK bank would consider the deal. Most ABL lenders required a diligence process that was too onerous given the foreign jurisdiction. Heritage tapped our channels to find the parties that would be willingly to lend in such a situation.
Produced four termsheets for our Client at leverage ratios that allowed them to significantly reduce their equity outlay, despite the distressed nature of the target
Our Client was a industrial conglomerate based in the UK with over £150 million of revenues. They were seeking to acquire a distressed company in the US with large sales, but relatively modest assets. Their acquisition would allow them to gain a stronghold in the US market and to cross-sell both the UK products into the US market and vice versa.
The international geography of our Client, along with the small asset base of the target, and it’s financial underperformance leading up to the time of the acquisition, made finding traditional debt financing difficult. Banks were not likely to lend on such a transaction and many ABL lenders took issue to the disparate geographies of the acquiror versus target. Our Client had also recently entered into the exclusivity period, allowing Heritage only a small window to find the right capital partner.
Within weeks, Heritage had solicited interest from a number of parties. Our Client was pleased with the results, which allowed them to reduce their equity outlay by nearly 70%. Our guidance to our Client and his finance department on how the deal should be presented and speaking to their ability to coverage the principal + interest payments got lenders excited. We garned four termsheets, all at competitive rates for our Client. Heritage subsequently quarterbacked the collateral audit, and oversaw the entire lender due diligence process on behalf of our Client.