Work From Home — Day 77
Our Journey – Setbacks hurt, again!
Happy Friday Team –
After Kent said to me, “You were not listening after NO…but we want an offer from you to buy Pacific Union,” we stayed and talked strategy for thirty minutes or so. Kent then went and grabbed one of his partners, Carter Mack, who I knew from my days as a Lacrosse coach at Cal.
JMP’s small business private equity fund might be perfect to facilitate this acquisition. Over the next few weeks, we worked through the capitalization of an entity to execute the acquisition. I was doing my best to minimize the capital required to maximize our ownership interest.
Early April 2009 and its “call for offers” by Brookfield. They even provided the offer letter template, which led me to believe there would be more than one suitor and they wanted the offers in a similar format. Financing is lined up with JMP. Our offer is in!
Two weeks of silence, then outreach from Brookfield to discuss our offer. Three Brookfield executives on the line, including Dave Lacey, myself, and Mike Silvas. They asked for some clarity on a few items and a change on another item, price.
I asked, if I reflect on this discussion and agree, what are the next steps? Lacey responded, “the deal is yours.” At this point fear runs through my veins. Like chasing a parked car – now what?
My follow-up question related to the closing date which in the offer letter was TBD. We agreed on July 2, 2009. The next day, I sent in a revised offer letter reflecting some, but not all of the requested changes. It was promptly signed and returned.
We are now approximately sixty days from closing.
Now I needed an attorney, so I called my good friend John Fitzgerald. John connected me to David Herzog in his firm, who I am still doing acquisitions and dispositions with today. Being new at acquisitions, I asked David about what the legal fees would be for this acquisition. His estimate was $15,000. By closing he had added a zero.
All of our due diligence was paper-based. We were buying “blind” and not permitted to talk to Pacific Union executives or visit offices. 100 percent of the information flow came from Brookfield in Toronto.
Third week in May the term sheet with JMP private equity fund was formalized and headed to the credit committee. Legal documents moving back and forth with great velocity. My learning curve is vertical.
JMP’s credit committee met on May 26, 2009. The term sheet came back to be with very aggressive red-lined changes. It was obnoxious. The cover letter should have said, “If you are crazy enough to sign this term sheet, we shouldn’t provide you this capital.”
My capital source just dried up – zero – thirty-four days before closing.
Here is where relationships become so incredibly important. I had negotiated with Dave Lacey in a very balanced, professional manner. Our business relationship was solid.
Imagine making that phone call to advise Brookfield that my financing had gone to zero.
A crushing setback.
Mark A McLaughlin