Financing a Strategic Acquisition by Leveraging Net Asset Value

Shields Legal’s estate planning team assisted a client in restructuring his assets into a private family trust company to support estate planning goals and financing a business acquisition. Initial lender feedback indicated that the assets and cash flow of the target business did not justify the requested amount of term loan financing. In response, we helped the client reorganize various portfolio companies and real estate holdings under a master holding company, thereby expanding the collateral base available to lenders.

Introduction

The client had identified a target acquisition offering high-potential investment opportunity, driven by the target’s early-stage status and strong projected growth. Although several financing options were available—such as seller notes and earnouts—the seller expressed a clear preference for receiving cash payment upfront. The client aimed to make a competitive offer and close the deal without liquidating any portfolio companies or real estate assets to fund the acquisition.

Problem

The client had identified a promising acquisition opportunity and successfully negotiated pricing and terms with the seller. However, securing financing for a significant portion of the purchase proved challenging. Lenders required additional collateral, which the client possessed in the form of real estate held by special purpose LLCs and portfolio companies. Unlocking and pledging this collateral efficiently required navigating complex legal, structural, documentation, and negotiation hurdles.

Solution

Shields Legal guided the client through a comprehensive strategy to overcome each of these hurdles:

Estate Planning Alignment: Shields designed a structure that enabled efficient collateral pledging while supporting long-term estate planning goals.
Dual Loan Structure: Shields negotiated and structured two term loans – one traditional acquisition loan and one net asset value (NAV) loan— each with distinct parties and collateral.
Negotiation and Documentation: Shields negotiated and drafted all term sheets and necessary borrower-side documents, resolved second lien consent issues, and addressed resistance from opposing counsel to ensure accurate representations and warranties.
Communication and Closing: Shields facilitated clear communication between the lender and its counsel, aligning the expectations of all constituents to the transaction and resolving communication roadblocks to successfully close the transaction.

Conclusion

The acquisition was closed through a coordinated multi-faceted closing process that included:

Acquisition term loan;
NAV-based term loan;
Second mortgage and title policy; and
Asset purchase agreement and supporting documents.

Through Shields Legal’s strategic planning and collaboration between our tax and transaction teams, our client successfully acquired the target business on favorable financing terms while securing his family’s long-term wealth via a comprehensive PFTC estate planning strategy.

Read Part 1 of this case study series — Building a Legacy

Read Part 3 of this case study series — Opportunity Delivered