Case Study

OEM Manufacturer Funds Complex Business Acquisition

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An OEM manufacturer in Wisconsin was looking to acquire another OEM manufacturer in South Carolina. The South Carolina company was the American subsidiary of a Danish company that was in bankruptcy, and the Danish bankruptcy court was forcing the parent company to sell its American assets to pay Danish creditors. For the Wisconsin manufacturer, this was a perfect opportunity to acquire a similar-sized company with a lot of synergies for an outstanding price.



The Wisconsin manufacturer needed a $10 million credit facility to seize this opportunity:


  • $3.2MM to acquire the company
  • $3MM line of credit
  • $2MM to refinance existing real estate
  • $1.4MM to refinance non-real estate debt
  • $400,000 for working capital


The problem was – the collateral position of the target acquisition was only $300,000. The company had enterprise value – but not much collateral to secure a loan. Lenders were only willing to finance the $300,000 that could be backed with hard collateral. For the remainder, they wanted the company to use alternative financing like subordinated debt or mezzanine financing.


OEM manufacturers have slimmer margins, and it wasn’t financially feasible to pursue high-cost alternative financing. The level of risk it would add to the transaction was unacceptable to the company.



The OEM manufacturer needed a lending team that could address the complex needs of this transaction, as their current lender was unable to. VITAL was engaged by a lender that was willing to extend the line of credit, but was not interested in the rest of the credit package. VITAL brought together a team of lenders that could meet the manufacturer’s spectrum of needs without introducing the additional risks of alternative financing.


A credit package was structured with three lenders:

  • Lender 1 - $3 million line of credit and depository services
  • Lender 2 - $5 million SBA 7(a) loan to cover the acquisition cost and refinance of nonreal estate debt. The guarantee provided by the SBA allowed the lender to extend $5 million in credit without corresponding collateral.
  • Lender 3 - $2 million refinance of existing real estate.


The Result

The Wisconsin manufacturer was able to move forward with the acquisition, expanding its customer base and growing revenue from $18 million to $30 million. Now that the acquisition is complete, they are focusing on implementing LEAN manufacturing techniques to continue improving profitability. Through streamlining processes and inventory management, they were able to generate $1 million in cash to support the growth of the total organization without having to borrow additional money.


Each bank that participated in the credit package was able to deliver the credit products they do best. Lender 2, which provided the SBA loan, sold the guaranteed portion, generating approximately $300,000 in noninterest income. Because of the goodwill that was financed, Lender 2 is earning 1.5% higher interest income on the portion of the loan that was retained.


Because the OEM manufacturer has ongoing credit needs, the lenders can continue to play an important role providing credit for the company’s future growth plans.


Contact VITAL for support growing your C&I lending portfolio, and managing risk with SBA and USDA guarantees..