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20th April 2021

Debt vs. Equity Financing: Advantages & Disadvantages

When your business needs capital to fund more of what it’s doing well, you may find yourself weighing the advantages and disadvantages of debt financing vs. equity financing.

Should your business borrow money to fund operations and growth, or should your business seek outside investors?  The answer to this question depends largely upon the condition of your business and your personal preferences.  Do you already have debt on the books?  Is your cash flow predictable?  How comfortable are you with partners?

Debt financing means borrowing money. You won’t have to give up control of your company, but too much debt can weigh your company down.

Advantages of Debt Financing

Perhaps the best thing about debt financing is that it’s temporary. Your relationship with the lender is mostly transactional.  Your obligation ends when the debt is repaid.  Your lender may ask for financial statements and information; however, he or she has virtually no control over how you spend your time or conduct your business.

Furthermore, debt financing is predictable.  Principal and interest payments are agreed upon in advance, and servicing this type of financing can become a regular part of your company’s cash flow processes.  Debt financing offers some flexibility, too.  Loans can be short term, long term — or somewhere in between.

Disadvantages of Debt Financing

Sometimes it can be difficult for a business or an owner to qualify for a loan. Often, lenders will demand assets of the company be held as collateral, and owners might be asked to guarantee loans, personally.

In addition, too much debt can cripple a business.

Unlike equity financing, debt financing takes money out of your business as cash flow.  If your business takes on debt — and if cash flow becomes unpredictable — you or your business might have a hard time making payments.  Finally, if you ever want to take on investors in the future, they’ll likely regard your business as riskier if it has too much debt.

Advantages of Equity Financing

Equity financing is often the less risky choice, because — as strange as it seems — you’re really under no obligation to pay the money back.  With equity financing, you won’t have fixed, monthly loan payments, and — usually — your investors will not be seeking an immediate return.

Equity financing facilitates long term planning, especially when your investors take a long view of your company.  This can benefit start-ups or companies seeking to enter new lines of business.

Disadvantages of Equity Financing

You will have partners, and your partners will expect to receive a return on their investments.

When you give up equity for cash, you agree to give up some of your profits.  And, sometimes, the amount you return to investors will cost your business more than the interest rates demanded by lenders.

When you finance with equity, you also give up some control of your company.

Equity investors typically want a voice in business decisions, and if you’ve taken on many investors, you may not be able to satisfy everyone.  Before you take on partners, consider whether you’re able to manage and resolve potential conflicts and disagreements.

Something Else to Consider

It’s worth noting that with the right investors, participation in business decisions can be a good thing.  Sometimes, investors have industry contacts, experience, or insight that can make growing your business easier.

So if you choose equity financing, try to find investors who understand your business or industry.  Some might be well-connected, allowing your business to potentially benefit from their knowledge and their business network.

Are you in the sportfishing or landscaping products business?  So are we.  If you want to learn more about how we help companies grow, we encourage you to contact us.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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4th February 2021

The Top 15 Axial Member Deals of 2020

by Peter Lehrman

We will all remember 2020.

Against the backdrop of a global public health crisis, an ensuing devastating economic crisis, and intense U.S. political and social turmoil, private capital markets found a way to march on.

After Q2 2020’s near complete stoppage of lower middle market M&A activity, the diversity of the lower middle market’s buyer set was on full display in the second half of the year. Gone are the days where business owners find themselves choosing between a few incumbent private equity firms and known strategic buyers. The lower middle market is deep and broad, with far more shades of grey, and that is a great thing.

2020’s lower middle market contains many sophisticated family offices, micro PE search funds, SMB owner-operators, thousands of PE-backed strategic buyers, emerging private equity managers, and seasoned independent private equity sponsors. Sector specialists, buy and build generalists, category consolidators. It’s all here, and the data backs it up.

For the fourth year in a row (see 2017, 2018, and 2019), we profile the top 15 Axial Member to Member closed transactions. This year, we selected a set of transactions that demonstrate the aforementioned diversity that we are seeing in the lower middle market.

Read the full article on Axial.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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2nd February 2021

Closed Deal Case Study: Elvisridge Capital & SurfaceLogix

By Dani Forman

I had a boss in a previous life who often liked to remind our team that “financial alchemy can only get you so far in the world of private equity.” He’d continue, “few things trump the value of hands-on operational experience and industry expertise.”

Michael Southard, founding partner at Elvisridge Capital, is a prime case study in the validity of the above adage. After spending 20 years building out the landscaping division of a family-owned lighting business, Mike decided to leverage his expertise by founding a niche private investment firm focused on the landscaping space.

Middle Market Review recently sat down with Mike to learn more about Elvisridge’s recent acquisition of SurfaceLogix, a 70 year old manufacturing business producing products for pavers, stone and concrete surfaces.

Read the full article on Axial.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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19th January 2021

How to Keep Managers Motivated Throughout the Exit Process

Show me an engaged and committed manager, and I’ll show you someone with something important to do, something exciting to look forward to, and a reason to care about the business.

This doesn’t change when a business is being sold, but it does become more important.

Be honest with key managers when you’re selling your business.  They’ll appreciate your candor, and discussing your plans will provide an opportunity to communicate around these three issues.

Give Them a Role

Allowing trusted managers to help buyers perform due diligence can go a long way toward easing anxieties.  So can giving key managers additional, meaningful responsibilities for which they are prepared — and this may help you to find more time to devote to the sale.

Recognition and inclusion can provide managers with a motivating sense of ownership.

Give Them Something to Look Forward To

Usually, there are reasons entrepreneurs align with particular investors. Maybe investors have a track record of growing businesses and allowing key managers to participate financially.  Perhaps your investors are prepared to provide stay-on incentives for critical employees.  Cultural fit can also be motivating to people who joined your business for reasons beyond compensation, benefits, and perks.

Whatever benefit your investors bring to the table, be sure to communicate it.  Managers with something to look forward to will naturally be more engaged.

Give Them a Reason to Care

Usually, key managers are people who were engaged before the sale.  So discuss with them the reasons they’ve remained committed.  Help them understand why these reasons remain valid, even as the ownership equation is changing.

Is there something they can achieve from the sale?  If so, uncover it and discuss what’s “in it” for them.

Managers with something to anticipate are more likely to remain engaged throughout the exit process.

Financial Strategies

Another strategy to consider — along with those described above — is for owners to offer stay-on incentives to key employees or groups.  These are often reserved for the most vital managers or salespeople within an organization, and they can include incentives beyond financial ones.

Typically, though, stay-on incentives guarantee employees a lump-sum bonus or payout over time for staying on through the business transition or to a specified date beyond the transition.

Sellers can also ask buyers for assurances about keeping existing employees on; however, such agreements aren’t always available and less often guaranteed.  Buyers eventually make their own judgments about the value of any particular manager or employee.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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2nd October 2020

Elvisridge Capital Acquires SurfaceLogix

(Beachwood, OH) Michael Southard, Managing Director of Elvisridge Capital, LLC, announced today the acquisition of Reliance Supply Company USA, LLC, a maker of decorative and maintenance care products for pavers, stone and concrete surfaces.  Reliance Supply was founded in 1950 and has operated under the brand name, “SurfaceLogix,” since 2011.

“SurfaceLogix fits perfectly into our focus on acquiring manufacturing companies in the landscape sector with products distributed through landscape wholesalers to landscape design-build contractors,” Southard explained.  “Our strategy will be to continue to grow distribution and to add complementary product to their offerings.  The team at SurfaceLogix has done a tremendous job of increasing sales during a difficult and challenging time; we want to accelerate their growth.”

SurfaceLogix President John Daly will continue managing day-to-day operations at SurfaceLogix, while Jack Miller, Vice President of Business Development at Elvisridge Capital, will assume responsibilities for business expansion.

“Our partnership with Elvisridge Capital provides us with financial backing and industry experience critical to expanding our distribution footprint,” said Daly.

Located in Pompano Beach Florida, SurfaceLogix manufactures paver sealers, roof coatings, surface cleaners and prep products, and a comprehensive line of eco-friendly, low-VOC cleaning and sealing products.  For additional information on SurfaceLogix, please visit www.surfacelogix.net.

With offices in Tampa, Detroit and Cleveland, OH, Elvisridge Capital is a private investment firm offering personal attention, operational expertise, and strategic resources to the companies it acquires.  The firm’s target investment sectors include sportfishing and landscape products.  For more information on our investment strategy and portfolio companies, please visit www.elvisridgecapital.com.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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29th May 2020

Five things to know about your business before approaching a capital partner

If you’re an entrepreneur wanting to propel your business to the next level, you may find yourself seeking a capital partner.

Such a partner can be a tremendous asset, because — unlike lenders — capital partners aren’t necessarily seeking a payment each month. Instead, a capital partner is “in it” with you and has a unique incentive to help the business succeed.

An investor can also become a reliable source for business advice and access to a strong business network.

Here are five key factors to know about your business when you’re seeking to attract such a partner.

First, know your numbers…

Investors want to see a return on their investments (ROI). If you can demonstrate your business will provide a healthy, ongoing ROI, then you’re over the halfway mark in terms of attracting a great business partner.

Knowing your revenue, expenses, EBITDA, and other key performance data is the starting point for entrepreneurs seeking to make a case for ROI. You should also be able to articulate how you intend to improve upon these numbers.

Second, have a plan…

A solid, easy-to-understand business plan will demonstrate to investors that you’ve been thoughtful about how to approach and grow your business. Make sure your plan describes your product or service, intended market, sales channels, marketing plans, and timeline for growth.

When presenting your business plan, you should also be able to discuss competition, barriers to success, and strategies for overcoming them.

Third, know your point of difference…

Virtually no business can provide an ROI without a unique position in the marketplace. So be sure you know why people want your product or service. What makes it different? What makes it special? What do you provide your target audience that others cannot?

Make sure to convey the problem you’re solving or challenge you’re helping customers overcome.

Fourth, be able to convey why your business is ready for an investor…

Make sure you can discuss how capital investment will help your business. What are your plans for the investment? How will those plans help your business grow? What do you need from an investor beyond cash?

And, of course, you should be able to explain, simply, what you’re bringing to the table that will help ensure a return on investment. That might be relationships, particular experience or knowhow. Perhaps you hold patents that provide a competitive advantage.

Regardless of your unique position in the marketplace, be able to answer the question of why you are seeking a capital partner. Convince your potential investors that you have solid plans to put capital to good work.

Fifth, have a clear valuation for your business…

For example, if you want $100,000 for ten percent of your business, you’ll need to be able to demonstrate that your business is worth a $1 million. This can’t be done by “feel” or based solely upon “projections” that may or may not come to fruition.

You should be able to make a strong case for the value of your business. Remember, as an investor and not a lender, a capital partner is going “all in.” He or she is typically trading cash for ownership. You must be able to articulate a reasonable value for what a capital partner is buying.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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15th May 2020

We’re looking for a few good partners. Here’s what that looks like to us.

There’s no such thing as a perfect investment; however, there are some fundamentals we at Elvisridge Capital look for when evaluating investment opportunities.

Here are a few of the questions we ask ourselves.

Does this business fit within our portfolio?

Our firm seeks, primarily, business opportunities within the landscape product and sportfishing industries. That’s not to say we won’t look at other opportunities, but business owners who approach us with a unique competitive advantage in either of these industries are in a good position to attract our attention.

Is this business the right size for us?

The investments we’re most interested in fall within a range of $200,000 to $3 million. From our perspective, some of these are companies too small to attract the attention they may deserve from large investment firms.

Is there a winning management team in place? And do those team members wish to stay in place or hold an equity position?

We place an emphasis on employee and manager retention. Often, the companies we acquire have key operators who desire equity participation. We believe the combination of our operating experience and the commitment of those already in the business are two of the most important factors to achieving a return on investment for everyone involved.

Can we add value to this business?

Many middle- to late-stage businesses have reached a plateau that can only be crossed with an injection of new processes, new relationships, or different ways of thinking. Our operating experience and vast network allows us to quickly decide whether we can add value to a business beyond our initial investment. If we offer to take an equity position in a business, sellers can be confident we believe our operating experience, resources and knowhow are a fit — and that we can help a particular business grow.

Is this a great long-term investment?

Finally, we can’t say that we’ll never sell a business. But we can say that we invest for the long run. We’re not the type of investors looking to polish-up and flip a business; rather, we seek to help the companies we acquire build long-term value and solidify their unique positions in the markets they serve.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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5th May 2020

Four types of private investors for startups and what you should know about each of them

Investors can be sought-after during virtually any stage of a company’s lifestyle. Below you’ll find four common types of investors, along with suggestions for when you might consider them.

Commercial Lenders

Think “banks.”

These types of “investors” really don’t want equity. They just want paid back, with interest. They’re among the most conservative of investors. In fact, they’re most likely to make loans to businesses with plenty of other options for financing.

Banks may also demand collateral, verified revenue and income, or even co-signers before making any loan at all. For these reasons, banks are often a good choice for late-stage, successful, well-established businesses.

Personal Investors

Start-ups and young entrepreneurs often seek help from family members, friends, or any number of other personal investors to get a business started. These investors often provide small amounts of capital, known as “seed money.” Typically, these investors provide just enough to help a business get off the ground.

While these types of investors — who are often family members, friends, or close acquaintances — are often well-meaning and easy to attract, we recommend documenting their investments and treating them formally and seriously, so that everyone knows what to expect when businesses succeed.

Angel Investors

Often confused with venture capitalists, these investors are more likely to be high-income, high-wealth, or high-net-worth individuals. Angel investors are available across a wide array of industries. They’re useful for entrepreneurs or start-ups that have crossed the “seed capital” stage of their business lifecycles — but who might not have the revenue or success necessary to attract venture capital firms.

Venture Capitalists

Venture capitalists are often useful once a business begins to show significant or reliable revenue. These are private equity investors that provide capital to companies with high-growth potential. In addition to risking cash, they often provide technical, managerial, or other expertise to help businesses grow.

If you operate a firm with enough of a track record, a venture capitalist might be the right kind of investor for you.

Elvisridge Capital seeks established, privately held, middle- to late-stage businesses based in the United States. We invest in situations where our experience and resources can help generate significant profitability improvement and revenue growth. To begin a conversation, contact us at info@elvisridgecapital.com.

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