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Author: Eric P. Barnes
Article source: http://www.expansion.com/. Used with author's permission.
Need to expand your non-US firm in order to exit gracefully with a large nest egg?
For most entrepreneurs and business owners, there is a desire to expand their company to some point of success, then retire. Or move on to another business.
The Usual Solutions
There are generally two solutions: (1) Sell out directly or (2) do an IPO - the traditional Initial Public Offering - hope you raise some capital, wait a few years, then sell your stock... if it's worth anything.
Selling out a privately held company usually results in a price 150%+ of profits. If you've been doing $1 million, look for about $1.5-4 million for your golden parachute. Minus taxes, of course. Not a terribly exciting prospect after all those years of work.
Solution #2 is daunting as well. You'll spend close to $3 million doing an IPO. Much of your time, up to a year actually, will be spent doing "dog and pony" shows for prospective market makers and institutional buyers, often ignoring your business in the process. Your chances of raising your targeted funds are about 50/50 at best. And 98% of all small companies going public are not in business five years later. Doesn't sound too promising either.
However, the major advantage to becoming a public company, among many others, is that your company is valued at a multiple of its price to earnings (P/E) ratio, normally far above sales. If it were possible to become such a company, raise needed expansion capital and build your stock value towards a major retirement nest egg - *without* having to do an IPO - you'd have a sane answer to your problem.
The Better Solution
It's possible. There's a Solution #3.
The key is to find a group willing to invest the amount needed for solid expansion, without giving up control of your company.
One such group, represented internationally by Capital Funds Group, does precisely this. It provides a simple and inexpensive method to bring you into the public sphere. It provides you with the SEC-required number of qualified shareholders. It also works with an offshore investment pool which will guarantee to purchase enough of your new shares to fund your company with enough to capitalize a major expansion. You will, however, need to follow their expansion strategy.
The group does more than just fund you. They will teach you how to make your stock support program work effectively...and inexpensively. They will guide you in expanding onto other markets internationally. They will protect you from short sellers. They will advance more funds as necessary if you're following their expansion strategy. And much more.
Benefits to the Business Entrepreneur
Before taking such a step, consider the benefits of becoming a public company.
a. Private placements are easier if you are a public company, as the investors can trade their stock on the open market.
b. When it comes time to sell, your company is priced on its share value times the number of issued shares, generally far exceeding the balance sheet value of a private company.
c. Banks prefer public to private companies when considering loans.
d. It's easier for a public company to expand into the Global Village.
e. You will become more attractive as a potential acquisition or merger target.
f. You will have sufficient funds with which to market and distribute your goods or services nationally or globally.
What Kinds of Companies?
What kinds of companies are being sought? These would be the general parameters:
1. Investment (or sales) of at least $500,000 in the company, net assets of $500,000 and a pretax profit of $300,000 (reinvested in the company).
2. In business for one year or more. (No startups.)
3. Manufacturing and/or service industries, high tech, biotech, internet, etc.
4. A major potential national and/or international market to be expanded into. If you are already in the international marketplace, all the better.
5. Proven management.
6. A NON-US company.
7. A desire and willingness to work the process through for five years.
Well, you knew there had to be a catch. What's that about? You have to agree that all your insider stock - which, by the way, constitutes the controlling interest in your company - will be pooled and not traded for a full five years, or until an offer of buy out or merger is tendered by an industry giant. There will be no dilution of stock value by insider trading. In this way, the Investors and Merchant Banker can help you control and maintain the growth of the stock in the marketplaces, ensuring a positive result for all investors and, not incidentally, a powerful one for the hardworking insiders who stand to make $60-80+ million at buyout time. (It should be mentioned here that the Merchant Banker's shares are also pooled and vaulted along with yours. Thus, they have a vested interest in your success.)
The Program Goal
I asked the man whose contacts and expertise created this expansion concept, what his overall goal was?
He said, "The premise is that everyone should win. The business consultants get their reasonable fees. The Merchant Bank gets its reasonable fee. The company gets enough money to ensure success. The Investors make a profit. The insiders profit in 5 years (or less) when the company is taken over by an Industry Giant. The public profits because the share price remains strong (no insider selling or unjustified dilution) and makes money from periodic upward moves in the share price."
Four Risk Factors
And what about the risk factors? There are four of them to be considered, any one of which could stop the process.
1. The Dow collapses in the middle of the process. If no one is buying at the top, no one will buy at the bottom.
2. There is a material misstatement of fact in the client's business plan. Both the Merchant Bank and the investors will do their due diligence, and should such misstatements be found, they will end the process at that point and any fees paid up until that time will be forfeited.
3. Loss of key personnel. This can, if not provided for, effectively stop your business in its tracks.
4. SEC denial of the NASD application. It should be mentioned, however, that as long as you meet all the requirements, and you will, this virtually never happens.
The Cost
Yes, I can hear the background question you've been asking all through this article. What's it gonna cost me? The total cost will be under $200,000, or somewhere less than 1/10th of what such a normal process would be, with guaranteed success if your firm is accepted into the program. (The time? Two to three months.)
Step One
What's the first step? If you feel your company can qualify, contact Capital Funds Group.
© 2005 Capital Funds Group Mr. Barnes is President & General Manager of Capital Funds Group Ltd., a Canadian based consulting firm specializing in Putting Companies and Money Together. They also work with non-US companies to take them public rapidly and inexpensively, then getting them funded. Visit our Web Site Email Him
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