Mid-America Packaging’s managers went through a highly leveraged buyout to acquire the company from its parent, Temple-Inland, in 2003. They worked to pay down the debt, and by summer 2005, they were ready to move forward.
“As the debt was getting paid down, it was time to look at some different structures, to refinance and get some better rates and to employ some capital in different ways,” says Steve Sneiderman, a partner with Hahn, Loeser & Parks LLP, which helped the company prepare for the deal. “We counseled the management, ‘Rather than simply walk into the bank and say, we want to refinance, you need to go through a process, the same process you went through on the other side when you were buying the business.
“You need to bring these guys in and give everybody a common set of financial information, give everybody a common set of background, plant tours, all the things that you would ordinarily do, and then have them make a bid.’”
Mid-American gathered financial statements, tax returns, material contracts, corporate governance documents and other materials to present to the banks so people could quickly get a feel for the legal and financial position of the company.
“There is always going to be due diligence,” Sneiderman says. “The question is, do you do it going in, or do you do it on the fly as you’re going along? There is a real advantage to doing it first and negotiating from a greater position of strength saying, ‘I know my balance sheet and income statement, and I can answer any other questions.’ You’re just in a more commanding position.
“We took three or four weeks to bring everybody in. We had five or six banks talk to us, and three or four banks submitted proposals. The process played out. It was a little more work for the company. They had to sit down ahead of time and prepare projections. We actually got a data room together on this so (the banks) could come in and do their due diligence to make their proposals.”
Part of that due diligence included targeting the right types of banks, because some really big banks aren’t interested in middle-market businesses.
“The banks that are targeting this market and aggressively pursuing loans are going to work with you, and when they see what they’re up against, they’re going to compete on the fees, compete on the rates, compete on the structure,” Sneiderman says.
By doing this, Mid-American got better rates and saved money on fees. It also got a more favorable covenant structure.
“Basically, every term in the deal was up for competition,” Sneiderman says. “(The company said,) ‘We’d like to do your closing rate, but your closing fees and legal fees are too expensive. Can you do anything?’ Amazingly, a lot of times those fees come down when faced with competition.
“Sometimes companies are so focused on getting credit they don’t concern themselves with the competition aspect.”
But if they do, the benefits can be huge.
“The competitive factor is the biggest part,” Sneiderman says. “At the end of the day, a bank is all about the risks they’re going to have. If they’re going to stretch their underwriting capability at all, they’re going to stretch for the company that gives them the impression and the feeling that it’s more professionally run and that it’s really on top of the situation better than one that gives you the feeling that they are flying by the seat of their pants.”
HOW TO REACH: Mid-America Packaging, (330) 425-2700 or www.midamericapackaging.com; Hahn, Loeser & Parks LLP, (216) 621-0150 or www.hahnlaw.com
