With forecasts for an increase in building-product demand on the horizon, dealers spent the year assessing ways to fund growth in spite of limited assets and existing debt. We enlisted Matt Ogden, a managing principal at Fort Worth, Texas-based building products-focused private equity investment firm Building Industry Partners, to share tips for getting the money you need without giving up (too much) operational control. It turns out that finding new green depends as much on learning from the past as it does on knowing where the cash is.
Debt vs. equity: To know what kind of financing to go after, it's important to first survey what you'll be using the money for and what kind of financing—debt or equity—will get you what you need.
Acquisitions: How do buyers determine the value of a business? Their metrics may seem arbitrary, but these five valuation drivers help them differentiate between a firm with growth potential and one that's destined to fall flat.
Private equity: It's no secret private equity firms were key in financing the growth of the biggest firms in LBM today—ProBuild, US LBM, and Builders FirstSource among them. So, what is it and will it work for you?
Mezzanine debt: For the privileged few who have the liquidity to leverage for the sake of financing acquisitions or expanding operations, it's a decent form of financing. But for everyone else, resist the urge to play to its allure.
Asset-backed loans: You have inventory, you have accounts receivable, and you have equipment—even if you're short on cash. ABLs let you borrow against their value, but it's important to read the fine print of the terms.
Learn from the crash: A new class of principles rules the post-recession financing game. And it's no surprise that more cash, less debt, and a rigorous credit qualification process are among them.
Talk to your bank: The housing crash strained relationships between the construction industry and the institutions lending to it. The ice won't melt overnight, but these nine tactics for talking with lenders can improve long-term relations.
Don't fear huge profits: "Relentless maximization of a business' profitability, within legal and one's moral bounds, must be a top priority," writes Ogden. Here's why.
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