What to do if you find a company that is over priced but sure to be a win in your portfolio?

M&A is know for its complexity, heavy negotiations, lengthy processes and in-depth strategy. It's not for those looking to make a quick buck or simpletons, it's a rigged game, with smart participants that have a strategic advantage.

Becoming a contender in the equities and capital markets is high stakes composed of an inter circle of MBA's, Investment Bankers, Investors and Financiers playing with OPM trying to win a high level game; that is like follow the queen, chess and shuffle board all-in-one.

Cult-like heard mentality, through multiple companies, attorneys, analysts and capital structures in which you are only as profitable as your data.

Those within the equities markets or investment banking might be familiar with the Greenmail;

The?practice of buying enough shares in a company to threaten a hostile takeover?so that the target company will instead repurchase its shares at a premium. Regarding mergers and acquisitions, the company makes a greenmail payment as a defensive measure to stop the takeover bid.

There is a strategy that uses the reverse psychology approach based on Greenmail, to acquire companies pushing and diluting equity share for the previous owners through leverage buyouts.

This can be done using a Reverse Merger or PIPE!

Reverse Mergers:

Many companies perform?reverse mergers, also known as reverse takeovers, as opposed to other, more traditional forms of raising capital. A reverse merger is when a?private company?becomes a?public company?by purchasing control of the public company. The shareholders of the private company usually receive large amounts of ownership in the public company and control of its?board of directors. This can provide liquidity faster and be less costly compared to raising capital and through an IPO.

What is a PIPE:

Private investment in public equity (PIPE) is the buying of shares of publicly traded stock at a price below the?current market value?(CMV) per share. This buying method is a practice of investment firms,?mutual funds, and other large,?accredited investors. A traditional PIPE is one in which common or preferred stock is issued at a set price to the?investor, while a structured PIPE issues common or preferred shares of convertible debt.

The purpose of a PIPE is for the issuer of the stock to raise capital for the public company. This financing technique is more efficient than?secondary offerings?due to fewer regulatory issues with the?Securities and Exchange Commission?(SEC).

SPV's, SPAC's and Private Equity Firms have similarities in terms of deal structures and raising capital but differences when it comes to specifics of ownership, management, profit distributions and liquidity.

Factors At Hand:

1. The acquisition target's ask is over-valued and all of your investors, financiers and advisors either don't want the risk or reasonability to meet revenue targets, milestones and objective that come with a hefty valuation.
2. You want a risk averse approach to valuation in case the company's revenue declines and so that the hurtle rate is not as much as a factor durning integration and future return on equity.
3. The deal structure has to have a promote that favors the acquirer based on consistent, accurate & dependable waterfall distributions calculated?on historic performance but built favorable as the company grows.
4. When buying a company this size you want the ability to control the direction, financials and management to build the top line by acquiring market share, more revenue streams through future acquisitions and increasing the exit multiple based on size and value within.
5. You need a structure that works! By this I mean including seller financing, earn-out cap and other creative structures so that the seller is comfortable selling the company to qualified buyer.

Acquisition Strategy Moving Forward:

Capital:

Investors make commitments to buying shares in the acquiring entity or SPV determined at current market value and projected returns based on historic performance and internal data,

Structure:

The seller is given a specific non-voting share class in the SPV or acquiring entity.

This share class offers share dilution; when a company issues additional stock, reducing the ownership proportion of a current shareholder. Shares can be diluted?through a conversion by holders of option-able securities, secondary offerings to raise additional capital, or offering new shares in exchange for acquisitions or services.

Cash Flow/ Profit Distributions- go to the SPV from the purchased entity but is in control from the buying/ acquiring company. Management is passed to the buyers for both companies leaving the previous owners minority non-voting share holders.

Creative Contingencies:

Using seller financing and earn-outs we can pay the gap between how much you are willing to pay for the company and how much they want to sell the company for. This can be dependent on performance metrics met over a lengthened timeline. If milestones or objectives are not met the seller's note or earn-out can be reduced to match your initial valuation. This limits exposure to risk and external factors.

If you want to acquire more companies to build the valuation of the SPV but you want to separate the debt under the acquiring entity this can be arranged.

Benefits of separating the debt:

1. Provide a more attractive balance sheet specifically for a reverse takeover with a public company.
2. Separate Liabilities in terms of risk and fallout.
3. Diversify financing solutions with all entities to obtain more funding in the future.