Offer 1: Asset Based Lender Cougar Doors has been offered a term sheet from Wise Guys Lending Partners (Wise Guys), an Asset Based Lender (ABL), from New York, New York. Wise Guys has been in business for 33 years and structured more than 1,200 deals over $500,000,000. Wise Guys are financially solvent and senior management has been in place for over 15 years.
QUESTION
Offer 1: Asset Based Lender
Cougar Doors has been offered a term sheet from Wise Guys Lending Partners (Wise Guys), an Asset Based Lender (ABL), from New York, New York. Wise Guys has been in business for 33 years and structured more than 1,200 deals over $500,000,000. Wise Guys are financially solvent and senior management has been in place for over 15 years.
The deal has been offered in the form of a receivable-based financing at $12,000,000 for Cougar Doors to acquire a competitor in the commercial door business. Cougar Doors wants to acquire Doors Unlimited, a 50-year old business, based in Tampa, Florida. Doors Unlimited is a healthy company with more than $6,000,000 in annual revenues and $1,250,000 in EBITDA.
Wise guys will fund Cougar Doors in $12,000,000 in cash to make its acquisition. After that, the deal will require Cougar Doors to pay 100% of its accounts receivable each month to a lock box company, All Tapped Out Collections (ATO), which will manage the collections for Wise Guys. The accounts receivable will be placed into a unique account where ATO will sweep the account monthly. Cougar Doors will keep fifty cents on the dollar. The term of the deal is 10 years.
Wise Guys are also asking for a 6% equity stake in Cougar Doors, which can be converted to debt in five years. Wise Guys have placed a covenant in the deal that if Cougar Doors revenue and/or EBITDA drop below $10,000,000 and $1,500,000, respectively, the equity stake will ratchet up to 15%, thereby giving Wise Guys are majority stake in the company and a seat on the Board of Directors of Cougar Doors.
ANSWER
Asset-Based Lender Offering Financing for Cougar Doors’ Acquisition
Introduction
Cougar Doors, a company looking to expand its operations through an acquisition, has received an attractive term sheet from Wise Guys Lending Partners (Wise Guys), an experienced Asset Based Lender (ABL) based in New York, New York. This offer presents Cougar Doors with an opportunity to acquire Doors Unlimited, a well-established competitor in the commercial door business. In this essay, we will delve into the details of the financing arrangement offered by Wise Guys, highlighting its benefits and considerations for Cougar Doors.
Background on Wise Guys Lending Partners
Wise Guys is a reputable ABL that boasts an impressive track record, having structured over 1,200 deals totaling more than $500,000,000 in the past 33 years. The financial solvency of Wise Guys is demonstrated by their long-standing presence in the industry, while the stability of their senior management team, with over 15 years of experience, further instills confidence in their ability to provide effective financial solutions.
Overview of the Offered Deal
Under the proposed agreement, Wise Guys would provide Cougar Doors with $12,000,000 in cash to facilitate the acquisition of Doors Unlimited. This receivable-based financing model ensures that Cougar Doors will repay the loan by committing to remit 100% of its accounts receivable each month to a specialized lock box company called All Tapped Out Collections (ATO). ATO will manage the collections on behalf of Wise Guys.
Repayment Structure
Once the accounts receivable are received by ATO, they will be placed into a designated account. ATO will then perform a monthly sweep of the account, with Cougar Doors retaining fifty cents on the dollar. This repayment structure allows Cougar Doors to maintain a portion of its receivables, providing the company with working capital for ongoing operations while fulfilling its repayment obligations to Wise Guys over the ten-year term.
Equity Stake and Conversion Option
In addition to the cash financing, Wise Guys is requesting a 6% equity stake in Cougar Doors. This equity stake can be converted to debt after a period of five years. This arrangement aligns the interests of both parties, as Wise Guys would benefit from the success and growth of Cougar Doors. However, it’s important to note that the equity stake carries certain conditions that may require careful consideration.
Covenant and Potential Implications
Wise Guys has included a covenant in the deal to safeguard their investment and ensure the ongoing financial stability of Cougar Doors. If Cougar Doors’ revenue and/or EBITDA fall below $10,000,000 and $1,500,000, respectively, the equity stake held by Wise Guys will increase to 15%. This provision grants Wise Guys a majority stake in Cougar Doors and a seat on the company’s Board of Directors. While this condition protects Wise Guys’ investment, it also imposes potential risks and loss of control for Cougar Doors’ existing shareholders.
Conclusion
The term sheet offered by Wise Guys Lending Partners presents Cougar Doors with an enticing opportunity to acquire Doors Unlimited through a receivable-based financing arrangement. This financing structure provides the necessary capital for the acquisition while ensuring timely repayment through the management of accounts receivable. The inclusion of an equity stake and conversion option further aligns the interests of both parties, promoting shared success. However, careful consideration must be given to the covenant that could result in increased ownership and influence for Wise Guys in the event of underperformance. Ultimately, Cougar Doors should weigh the benefits and potential implications of this offer in light of its long-term growth objectives and existing shareholder interests.

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