E205: Raising Capital for Acquisitions: Funding Sources to Finance Your Dream Deal w/ Parnell Speed - Watch Here

About the Guest(s):

Parnell Speed is a seasoned professional with a background in engineering and experience in the real estate sector. After navigating the challenges of accessing capital in his own ventures, Parnell identified a widespread need for trustworthy guidance in securing funds. Transitioning into the mergers and acquisitions (M&A) space, he was particularly drawn to the concept of roll-ups and sought to deepen his expertise through a dedicated training program. In 2019, he established his own firm, focusing on helping individuals acquire capital for acquisitions, and has since stood out as a reliable advisor, steering clients away from unfavorable funding and towards optimal financial solutions tailored to their specific circumstances.

Episode Summary:

In this episode of the How to Exit Podcast, host Ronald Skelton chats with capital-raising whiz Parnell Speed about the intricacies involved in sourcing capital for business acquisitions. Diving right into the world of M&A, they explore various avenues for funding, capital arrangements, and the importance of financial preparedness when taking over a company.

Parnell brings to the table a wealth of knowledge from his professional journey, which spans from engineering to real estate, to his current focus on capital acquisition. With a candid conversation on the realities of funding, they lay out the building blocks of successful deal-making, emphasizing creativity and diligence as central to overcoming financial challenges.

The discussion navigates through the kingpins of acquisition financing, such as SBA loans and owner financing, and veers into the oft-overlooked realm of non-recourse funding and capital stacking for business takeovers. With a clear view of the landscape, the episode illuminates the path to strategic acquisitions by dissecting the methods and timelines involved in leveraging assets, contracts, and private investor relationships.

Key Takeaways:

• Acquisition financing includes a range of options like SBA loans, asset-based financing, contract financing, and owner financing, but private investors can also play a pivotal role in funding deals.

• Being strategic in capital stacking, which involves combining different types of funding, can enhance the potential for a successful acquisition.

• Creativity in sourcing and arranging capital is crucial; it's about finding the right money rather than just any money.

• Preparation for growth and operational costs post-acquisition is as important as financing the purchase, and should be factored into the fundraising strategy.

• The sooner you start planning for funding an acquisition, ideally before even signing an LOI, the better prepared you'll be for a successful transition.

Notable Quotes:

• "You're only limited by your creativity in terms of finding the type of money that you need to do your deal." - Parnell Speed

• "It's not as daunting as you might think. If you educate yourself and you work with the right people, it's very doable." - Parnell Speed

• "Knowing your way around the capital stack, what your business can handle, and your growth plans can make or break your acquisition's success." - Ronald Skelton

Article:

Navigating the World of M&A Financing: Unlocking Opportunities for Aspiring Acquirers

Navigating the complex landscape of mergers and acquisitions (M&A) can be daunting, particularly when it comes to securing the prerequisite funding. The conversation between Ronald Skelton and Parnell Speed reveals the intricacies and possibilities within the realm of M&A financing, offering invaluable insight for entrepreneurs embarking on the acquisition trail.

Key Takeaways:

• Creativity is Key: Deploying a creative approach to capital stacking can significantly diversify and secure funding sources for M&A activities.

• Know the Playing Field: Understanding the various types of financial products available and their respective requirements will equip acquirers with the necessary tools to successfully secure funds.

• Plan for Post-Acquisition: Securing capital for the initial purchase is crucial; however, planning for subsequent growth and operational costs post-acquisition is equally critical for long-term success.

The Art of Capital Stacking in M&A

In the domain of M&A, acquiring the necessary capital for a successful takeover can be attained through a method known as capital stacking. This strategy involves layering different types of funding sources, from traditional SBA loans to asset-based financing, private investors, and more. Speed emphasizes the importance of assessing the right type of money for one's specific situation, noting that while there are numerous avenues for capital, each comes with its unique set of pros and cons.

To illustrate, Speed explains, "That's after everything [the lenders] need is into the underwriter. Right. Let's see, what else... you've got what's called non-recourse funding. I don't know. That's when there's lots of different versions of that. But essentially the way it works for those people who don't know is that your project funds the loan, essentially, and that takes out the PG, the personal guarantee, which is what people really want to avoid as much as possible when they're doing these deals. Right."

When crafting a dive into the nuances of capital stacking, consider pertinent factors such as the health of the company being acquired and current market conditions. Additionally, it's crucial to ponder whether each funding source’s repayment terms align harmoniously with the projected cash flow and profit margins of the target company.

The Clock is Ticking: Securing Funds Efficiently

Time is of the essence in M&A transactions, and choosing a quicker funding route can be the difference between a deal closing and one that falls through. While SBA loans offer compelling rates, they can be arduous and time-consuming. Speed advocates for more rapid alternatives like non-recourse programs or approaching private investors when under a time crunch.

"If they're in a situation, especially 120 days out? I would definitely try either. I would steer them toward either non recourse program like the one that we have, or go toward private money," states Speed, recognizing the inherent speed and relative ease some of these alternate financing mechanisms can offer.

In this context, potential acquirers must recognize the importance of beginning the capital search process well in advance, ideally even before engaging in deal specifics. Scouting for capital sources early provides comprehensive insight into what funding is realistically attainable, which can significantly inform negotiations and deal structuring.

Beyond Acquisition: Funding for Future Growth

Arguably as vital as raising money for the acquisition itself is securing capital for growth and operational expenses post-purchase. Speed stresses the significance of not only envisioning but also financially planning for this aspect from the outset.

"If you educate yourself and you work with the right people, I think that's, that's it. If you're not seasoned in that yourself, right. Is to work with, with people who are going to have your best interest at heart is very doable," Speed advises, pointing to the consideration of factors such as marketing, equipment upgrades, and staffing necessary for propelling the business forward.

Positioning the company for growth involves an in-depth understanding of the operational costs that will incur following the acquisition. Entrepreneurs should ensure their capital stack includes sufficient funds to not only maintain but expand the business according to strategic growth plans, thus securing the company's trajectory towards increased profitability and success.

Acquiring the Means to Acquire

Setting the tone for an M&A endeavor begins with securing the right capital, but understanding the various products and strategizing for post-acquisition growth is central to a successful venture. Engaging with experts like Parnell Speed can unearth the suitable financial sources and marginalize the risk, putting acquirers on the winning side of the negotiation table.

For those looking to embark on this journey, reaching out to seasoned professionals like Parnell Speed and comprehensively preparing for both the acquisition and its aftermath can spell the difference between an M&A triumph and a teachable moment. With the right approach and preparation, the complex world of M&A financing becomes not just navigable but rife with opportunity.

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