John Veleris, an entrepreneur, industrial engineer and turnaround investor, heard about an orphaned division of a large multinational that was targeted for sale. The division, Belwith Products, owned valuable brands, but was in the kitchen cabinet hardware space. The parent foresaw a prolonged downturn in the housing market and had decided it could employ its capital better elsewhere.
It was September 2008, and the purchase had to be closed before December 31. The financial markets were in turmoil, and liquidity in the banking industry was rapidly evaporating. They would be capital raising during the most challenging period since the 1930’s Depression.
As a supplier of housing related building products, it looked like a very difficult execution. But we found mitigating positives: a review of the details revealed high quality accounts receivable. In an uncommon step that was taken to allay concern about collateral value, an inventory appraisal was ordered, and indicated a liquidation value in excess of the purchase price by itself.
John and his partner, Tom Guido, faced the prospect of recording a material gain on purchase. But the financial markets had now deteriorated to where large depositors were conducting electronic runs on banks and were stripping them of deposits and rendering them illiquid. Our reading of the market was that we were running out of time and that the markets would close before the transaction could be funded.
A review of the time line in comparison with the deterioration of the markets indicated that the only possible resolution was to continue due diligence, pursue credit approval and negotiate documentation simultaneously. Air-tight process management was implemented, with multi-party communications emphasized to avoid having critical time lost. The transaction closed December 15, 2008, and we were later told that this was the last transaction closed of its type – acquisition capital raising as the markets collapsed – until after the worst of the financial crisis had abated .
For more see: Capital Raising