BuildingCo was constantly in a cash crunch.
The company manufactured a line of building products, had one production facility that supplied 12 regional warehouse/distribution centers and was founded by two entrepreneurs. BuildingCo was well positioned in a steadily growing (at the time) geographical region of the US. To help fund the company’s growth, management used a combination of outside capital from 2 private equity groups, mezzanine and senior debt.
However, as the velocity of growth accelerated, the company regularly bumped up against their line of credit availability.
They were running on cash fumes.
Pete, the CEO/Co-Founder, grew weary of his company’s cash flow problem. He had a simple solution…get a new slug of equity into the business from the 2 private equity funds and BuildingCo would be free from their growth shackles.
Sounds like an easy solution. Draw up the paperwork.
However, the private equity guys ‘suggested’ a different approach to Pete.