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Case Study

the situation

Government diplomat sees an opportunity to provide crown corporations with a “managed service” uniform fulfillment program. He partners with two other business owners that manufacture pants and shirts.  Over several years the company sees significant growth through winning government contracts, including the Department of National Defense and Canada Post. After the initial success, the pants and shirt partners attempt to take the company from the entrepreneur by triggering a shotgun clause. The first shotgun was a low ball offer. The Shotgun Fund responded and worked through Boxing Day and New Years to buy out the offending partner. Once completed, the remaining partner triggered the second shotgun at a higher price.  Again, the Fund responded and became 50/50 partners with the entrepreneur.

In 2011, we made an acquisition of a similar company in Australia with a local partner by way of  a joint venture arrangement. We also brought in a larger PE fund as a minority shareholder. We set about right sizing the business, selling or closing marginal operations and bought out our Australian joint venture partner. The three owners agreed that supplementing the management team with strong and financially motivated senior managers would increase performance and prepare the company for sale.

 

the investment

  • This was already a profitable, non-capital-intensive business, it fit our Momentum Criteria.
  • The owner manager was motivated to move quickly, but was not experienced in acquisitions, thus we needed to be more involved at this level.
  • Joint venture arrangements like all partnerships have their special issues, prepare for them in advance
  • It was critical to keep the company tied to strategy and manage alignment between shareholders the entrepreneur and the rest of the management team.
  • The selling process was carefully managed to optimize value for the all stakeholders.
  • You may not know in advance when a particular investment will hit it’s inflection point for value, therefore investment time horizons must be flexible.