THIS IS not a discussion of the debt/equity theorem of every finance director’s favourite authors – professors Miller and Modigliani – who first published their pre-groundbreaking article in 1958 in the American Economic Review on what has become known as the M&M theorem. I am sure you speak of little else.
No. This is a practical case of needs must, when The Secret FD was faced recently with the urgent need for funding because access to many forms of capital was restricted. An acquisition was in prospect, due diligence and negotiations were progressing, and an agreement on a cash price was imminent. Exciting for all involved, but the financing issue loomed large. Inevitably, the timing was all wrong.
The equity markets were in a period of low appetite – ie, closed. But the debt structure for the group was low and under control. So, the loan syndicate might be receptive to a proposal to fund the acquisition. The financial crisis in the eurozone meant this was not an option.
So we looked to the high-yield bond market in the US and never looked back. Except, that is, for the roadshow.
Our lead bank worked with us on the proposal, the business case and the legal documentation. We created a flattering business presentation, picked the team of victims from the bank and the company, and embarked upon a two-week investor roadshow across the US.
Those who have done US roadshows know you need a private jet and a map. The weather map on the back page of US Today was pinned to a wall of our Gulfstream and we plotted every flight on it. There was absolutely no geographical reason to our route. We flew in and out of time zones seemingly at random, visited the New York/Boston area three times, Chicago twice, the west coast twice, and a host of cities in between, but with no logic other than the diaries of potential investors, irrespective of their locations. We got through three air hostesses (one to an accident when she was fetching pizza for us), four pilots and two aeroplanes after one broke.
Each set piece became better than those previous as we noted every question, adjusted the scripts and eventually achieved presentations where no questions were asked at all. We learned to avoid jokes and anecdotes because we became audience-blind in the repetition of our scripts.
We also became progressively disorientated. The only time for sleeping and eating was in the air, but only when we were allowed to do so by the bankers. Disappointingly, drinking was forbidden. All the hotels appeared to be the same, except one golf resort in Arizona, where we arrived at 11pm, gave a 7am breakfast presentation, then left immediately (without breakfast) protesting that a game of golf would do much more good than the next gig. At most airports, we were met at the executive terminal and delivered back again by what looked like the same driver, usually called Brett, in what looked like the same stretch limo.
After two weeks of this torture our bankers suddenly became animated and enthusiastic: feedback was positive, momentum was growing, investor appetite was strong and price talk was at a sensible level. In other words, they could see that their fee was assured.
These bankers made our hell-like experience sound surprisingly easy when we eventually received the money, but The Secret FD needed all his stamina to get it done. Miller and Modigliani could never have predicted the severity of the now familiar successive debt crises, nor the practical consequences their theories would have on the day-to-day lives of FDs trying to raise funding. ?
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