The Shotgun Fund

Our Christmas Vacation

Our Christmas vacation

December 2000

As we were making last minute Christmas plans, the phone rang.

The caller: an operating shareholder of a profitable, mid sized business which had three equal shareholders.

Purpose of call: one of his financial partners had cleverly triggered a shotgun clause in their shareholders agreement against the other two on December 5th. The deal had to close on January 3, 2001.

This should have been a lay-down because:

  1. the company had cash and unused bank-lines three times greater than the shotgun price
  2. the company’s long time bankers eagerly agreed to the financing
  3. the bank knew the operator, the company and its prospects

However, on December 20, the bank withdrew its commitment. With a combination of apologies and mumbled excuses concerning ‘security perfection’ and ‘Head Office rules’, the bankers bid the principal a "Merry Christmas".

The Principal’s reaction: he found The Shotgun Fund on the Web on December 21st; he needed $4 million in four business days.

We first met on Friday Dec 22 and what followed was pretty much a textbook procedure:

  • December 22: we struck a deal
  • December 23: wrote up the proposal for our advisory board
  • Christmas Eve: time with lawyers and advisors and finally... family
  • Christmas Day: advisors approved transaction, lawyers started drafting
  • December 26: Jim in Toronto, Richard in Quebec. Drafting finished at 3am
  • December 27: 4am, the deal was signed
  • December 29: funds in place

Holidays: postponed to March Break

March Break: an encore performance

Shortly after closing, the remaining shareholder pulled a second shotgun. Believing the principal had exhausted all financial resources, he pulled it at just shy of double the price of the first. Closing was to be the week of March Break. (Holidays: on hold!)

The second lay-down: again, the company had the resources to finance the transaction. This time, the bank was cautious. It agreed to look at the transaction and promised to get back to us. The Shotgun Fund decided to finance the transaction itself.

At its peak, The Shotgun Fund’s total commitment to the transaction was just under $11 million.
The bank ultimately did commit to the deal just two days prior to closing, but the time frame was too risky.

P.S. We have had fun poking fun at the bank in this letter. But in fairness to the bankers involved, this deal looked straightforward, but was not really a bankable transaction.

Next installment: what we did on our summer vacation!