"I've already made some accounting changes as a result. But the main thing that I'm hoping is that the GE Capital contacts I've made through the course will help me improve my financing prospects," Tolisano says.
HARD LESSONS
'We launched the IPO again last summer and again wound up pulling it in July.' --David Tusa, CFO and vice-president
COMPANY: U.S. Legal Support Inc., in Houston
BUSINESS: Litigation support
1998 REVENUES: $50 million
NEEDED: $35 million to $40 million to reduce debt and fund acquisitions
FIRST TRY: Initial public offering
Two-year-old U.S. Legal Support Inc.--founded by a group of litigation-support companies--is already a $50-million business, thanks to 14 acquisitions it made in 1997. "Our industry is highly fragmented," says chief financial officer David Tusa. "It was fairly simple for us to raise the private-equity money we needed." Next on the company's growth agenda was its plan to carry out an initial public offering in the hope of raising $35 million to $40 million to support additional mergers.
Unfortunately, the IPO market didn't cooperate. The company's underwriter tried to bring U.S. Legal to market during January 1998, then pulled its offering (along with those of several other companies) because conditions seemed too volatile. "We waited for things to settle down, launched the IPO again last summer, and again wound up pulling it in July," says Tusa. "We actually cleared the SEC twice and wound up raising nothing. It's very frustrating when your business operations are great and the capital markets won't support you," he adds.
Tusa and his colleagues now believe that even if the IPO market settles down, the "benchmark changed between 1997 and 1998 for the kinds of deals that will get done." Now, he says, "we need to be larger for the current public-market mind-set. I think we'll have to grow sales to $75 million to $100 million before we can hope to carry out a public offering."
HARD LESSONS
'The company didn't meet a bank's standards for financing.' --Joe Elizondo, CEO
COMPANY: C.V. Date Co., LLC, in Coachella, Calif.
BUSINESS: Processes, packages, and distributes dates
1998 REVENUES: $1.3 million
NEEDED: Funds to cover uneven cash-flow cycle owing to seasonal business
FIRST TRY: Bank line of credit
For Joe Elizondo, raising capital was absolutely essential. "We needed the financing to help us purchase our product from growers and cover our operating expenses during those periods when revenues aren't coming into the company," he says. Elizondo spent two months in late 1996 trying to raise about $400,000 in a bank line of credit, but he couldn't get anywhere. "Our company's owners, two Latina women, had purchased it during a period of financial trouble and aimed to turn it around. But we didn't meet a bank's standards for financing, since the company's assets were encumbered by an SBA loan, its financial history had been troubled, there had been problems with the IRS under the old owners, and its new owners didn't have a lot of personal assets."
With the help of Jesus Arguelles, a private investment banker in La Quinta, Calif., who focuses on small, growing companies, C.V. Date was able to pursue more flexible sources of credit instead. "We've put together a package of working-capital financing that ranges from $350,000 to $800,000, mostly in credit, depending upon where we are in our cash-flow cycle," Elizondo says. The package includes vendor financing, accounts-receivable financing, and what Arguelles calls "friendly-investor financing," in which a company outsider, a contact of Elizondo's, purchased some equipment for C.V. Date and leased it to the company. "I could never have accomplished all this on my own, especially while running a company in turnaround," confides Elizondo.
HARD LESSONS
'Selling equity seemed like a way to raise a lot of capital.' --Marshall Rafal, founder
COMPANY: OLI Systems, in Morris Plains, N.J.
BUSINESS: Chemical-simulation software
1998 REVENUES: $3 million
NEEDED: Growth capital
FIRST TRY: Investment-banking house
During the past year Marshall Rafal pursued what he calls "the broad spectrum of equity possibilities" for his company. "Selling equity seemed very tempting," he says. "It seemed like a way to raise a lot of capital at a time when we needed it for our growth strategy. And I liked the thought of bringing in an equity investor who would be an asset for us on our board."
Rafal contracted with a regional investment-banking house to explore his company's options. Early in 1998 the timing seemed right. But by last autumn, when turmoil in the public stock market had deflated the value of many possible private-equity transactions, Rafal decided it made better sense to stick to debt. "When you combine the reality of falling valuations with the specter of giving up at least some control of the company, debt was just clearly a better way for me to go," he says.
Rafal pursued a Small Business Administration loan application that had been wending its way through the paperwork and approval process for nearly a year. "The SBA insisted on all kinds of collateral, including personal assets," he says. Still, the loan, which closed in mid-November, "has given me the funds we need to push our company to the next level, while also allowing me to keep control of our stock."
