After Tri Star Energy made an acquisition this past year, another acquisition opportunity followed right on its heels. CFO Wayne Acklen says the question of how to fund it was easy to answer.
"When we funded our larger acquisition, we really considered in the next year or so we may have some additional opportunities," Acklen says. "We factored that into what we asked from our bank group and went ahead and set up a significant revolver that would allow for future acquisitions."
By thinking it through, planning ahead and continuing to have conversations with their bank group about their needs, what the bank could deliver and the bank's constraints, if Tri Star Energy wanted to dream bigger, it was clear what directions it needed to go to get additional resources.
Acklen says it was a good thing financing for the transaction was already being arranged because the company was competing against some much larger companies. And part of the deal, he says, was that his company had to go in with a no contingency offer for financing on day one.
"Our company already started thinking through that and took the approach of, look, we need to restructure our credit agreement, let's go ahead and put it in place," Acklen says. "Instead of getting a commitment letter (from the bank) that says we'll fund the acquisition, let's go ahead and amend our debt agreement prior to signing the acquisition agreement."
They did that and put a delayed draw in for a significant amount that would allow Tri Star Energy to do the transaction within a four-month time period. That enabled them to iron out all the details they wanted, model it and know that wouldn't change.
Immediately after signing the APA, the pandemic hit. But because of the financial legwork and commitments that were in place, both companies knew they could manage the storm with their current debt positions.
"We looked at the transaction again, said, Look we're on the hook, we're committed, the bank's on the hook, they've got to lend us the money because we already had the prearranged deal with them. And so looking back, when the market significantly changed, we were thankful we had gone ahead and locked everything in and created that delayed draw."
Acklen says that key point of forethought by the company's legal team to structure the deal even without knowing what could change in the next couple of months and setting up the delayed draw ensured the deal could move forward as it did.
"The biggest thing for clients is to make sure that you're ready for prime time," says Baker Donelson Shareholder Tonya Mitchem Grindon. "Do the work before you go out and decide that you want to do a capital raise or a financing. Look at your midterm, your long term, figure out what you're trying to do."
When you know you want to do an acquisition, get prepared ahead of time. Get your lawyers involved to scrub all of your diligence and make sure that there are surprises.
"You don't want any bad surprises once the process gets going. And the best way to do that is get your accountants in there to make sure in your financials there's no surprises, and make sure your lawyers are in there to (ensure) the contracts are all in good shape and there's not going to be any surprises with some weird provision in a contract."
She says it's also prudent to prepare for contingencies so that you don't let one event derail the whole process.
"It's important that you thought ahead of time about the different paths that can happen when you're going down your financing and make sure that you've got a plan for each of those contingencies that might happen. Make sure your company is ready, that there are no skeletons in the closet that you haven't examined and try to fix beforehand, because those kind of things are what will derail the process once you get going."
Acklen and Grindon, along with Quorum Health EVP + CFO Alfred Lumsdaine and PNC Bank President - Tennessee Michael Johnson, spoke at the recent Nashville Smart Business Dealmakers Conference about financing your business to supercharge growth and how planning ahead can prepare buyers and sellers for just about any contingency. Hit play on the video above to catch the full conversation.
