With more than 20 acquisitions of corporations or businesses, and another 20-plus of commercial real estate, as a former owner of a business, Ron Beam, Chairman of ARME Group Inc. has learned about the many ways to finance a deal. For instance, he told attendees at the 2023 Milwaukee Smart Business Dealmakers Conference that when it came time to buy his own company, Beam knew how to put a deal together, he just didn't have any money, so he had to get creative.
"Imagine negotiating to buy someone's company and you had to come up with $3 million in 90 days," Beam says. "I knew enough about drafting an LOI, knew enough about giving me enough time to put the deal together. But, again, once you sign the LOI, there's nothing more pressuring then figuring out how you're going to get the deal done."
He connected with former colleagues who came in as equity partners and did the remaining majority portion of the equity. The rest, he says, came from North Shore Bank.
"I think they get the rap of being a conservative bank here in Wisconsin. But what we found is that we could get them to do things that, quite frankly, maybe a larger institution wouldn't do," he says. "So, over the years with them, whether it be real estate, whether it be corporate structuring of deals, they were always able to get things done."
However, in a recent real estate transaction with partners involving a residential single family home development during the pandemic, Beam says bank debt didn't work for the deal. So, he reached out to what he calls FPE, which is friendly private equity. Together, they decided they'd pursue the opportunity without it.
"We did it with 100 percent equity. And we're glad we did it," he says. "It's been a great success. But if I learned anything it was that having a close network of FPE could allow you to do anything you wanted to do if you really felt strongly enough about the opportunity."
He says when putting together a deal, any projections given to a financer one day are going to be obsolete the next. What's important is how hard the entrepreneur is going to work to make the deal a success.
"Nothing put together on a piece of paper is worth crap if you're not going to put the hard work into ensure it comes to reality," he says. "We've never had an issue with our projections not achieving — in fact, we've blown through them. It's the extent or the level of participation of the people involved that will dictate or determine success."
He says it boils down to being conservative with what a buyer or entrepreneur puts on paper and considering all options.
"You might have a set of projections that you have for yourself that, this is what my expectations are. But I think when you're dealing with other people's money, you have to be really truthful with what it is you think you can do," he says. "As someone that's been in that, it gets you out of bed in the morning, it keeps you up at night worrying about it — I think I worry about it more than I worry about my money."
However, he says there are things beyond an entrepreneur's control — like the pandemic — that can affect their ability to hit projections. That's why it's the relationships one has with FPEs are important because there may come a time where bank financing is not going to help and an alternative is needed.
"Even the lawyers can do a lot here with business owners in terms of Reg D private placements or raising capital from that perspective," Beam says. "There's a lot of things you can do there that are not that expensive. Maybe it's $10,000 to $20,000 in legal fees to do a Reg D placement or offering. But it allows you to tap — possibly, legally, with all the protections necessary — it allows you to tap equity that maybe you wouldn't have been able to tap. And again, it allows you some protection as well in that you're doing it the right way — all the disclosures, it's being sold as a security. So again, I think the key: talk to your lawyers, talk to your bankers, talk to your accountants and do that now versus when it's too late."
When a loan application is rejected, he says it can be motivating and put entrepreneurs in a position to ensure that what they think they can do is legit before they commit to it.
"In our case, again, doing a subdivision in the middle of a pandemic, probably not a real appetize thing for a banker," he says. "But nevertheless, we said we still believe in this. We felt that across the country, single family homes were underbuilt, land development wasn't being done. So, we felt strongly about it, that we just said, 'We'll just use our own cash and do the deal.' So, there's always a means and a way to get a deal done. It's just a question of how much debt you're going to put on it versus equity. And again, you can go down from those two categories and get really creative like we've done in the past. But if the banks aren't going to be there for you, they maybe perceived as something that's outside your scope, you just got to pull more dough out of your pocket to get the deal done."