The Investment Banker as Your Partner Throughout the Life Cycle of Your Business
When it comes time to sell your company, hiring a good investment banker is essential, but engaging a banker earlier on in a company’s life cycle can be transformative. There are decisions along the entrepreneur’s journey that are so critical and yet so often undertaken without the proper advice. These may include when to raise a credit facility, how to choose an equity investor, and how to negotiate the acquisition of a competitor. Many people think investment bankers are just sell-side M&A advisors. The best investment banking firms, though, work as partners to business owners and management each step of the way, putting together the building blocks towards an eventual exit. By the time you’re ready for the big sale, your banker knows all the ins and outs of your company, how to articulate your story, and how to look out for your best interests. Working together through stepping stone transactions as well as non-transaction oriented strategic planning makes the result of the exit transaction all the more rewarding, both for the owner and advisor.
Earlier this year, Intrepid advised Artisan Vehicle Systems (Artisan), an extraordinary, Southern California-based electric vehicle company, on its sale to Sandvik, the Swedish industrial powerhouse. Artisan has revolutionized the mining equipment industry by making battery-electric underground loaders and haulers a reality for gold miners, getting the attention of the big mining equipment players like Sandvik. Before that, however, Artisan was just a start-up in need of a working capital line. Artisan was looking for an advisor who understood its vision and shared its passion for transforming industries so that it could establish a long-term investment banking relationship. The company knew that Intrepid was willing to take projects earlier on than most, and we joined forces.
“Industry disrupting technology is an entrepreneur’s best friend. Anything that throws an industry off balance gives the newcomer a chance to gain a foothold. If that technology drives an inflection point, the newcomer can become the market leader. More than any other industry, mining has the most to gain from electric vehicle technology. The value proposition to mining companies dwarfs the opportunity to disrupt any other vehicle segment,” said Mike Kasaba, CEO of Artisan. “We were the first mover in mining, and we are accelerating the imminent inflection point in this industry. Our position in the market plus the strength of Sandvik’s manufacturing and service infrastructure has given us the boost we needed to become the market leader.”
Artisan used the proceeds from its first transaction to purchase key raw materials from which to assemble its game-changing Z40 hauler. “The most expensive capital expenditure in underground mining is for ventilation. Driving air underground requires dedicated shafts and systems that are extremely expensive to buy and to operate. Diesel emission is the No. 1 cost driver for ventilation system design. By eliminating diesel emissions in underground environments, we dramatically reduce the capital and operating costs for a mine site. The Z40 trucks haul 40 tonnes of ore and offsets huge amounts of diesel emissions,” explained Kasaba. “Our design not only eliminates these emissions but maximizes productivity with more power, larger loads, fast charging and automated battery swapping systems. The result is a machine that not only reduces emissions but also outperforms conventional diesel equipment.”
Securing Your First Credit Line Is a Big Deal
Securing your first credit line is a big deal, particularly when you have non-traditional collateral and a long sales cycle. Traditional banks may not be an option, so you may need to navigate the world of non-bank asset-based lending (ABL) shops, royalty financing groups and intellectual property (IP)-based lenders. Working together on this initial capital raise allowed us to demonstrate the merits of a competitive process, and it allowed Artisan to educate us on the nuances of its business. While the company, at that point, was relatively “un-bankable,” we were able to tap the vibrant non-bank lending market and produce a number of alternatives, getting lenders comfortable with the company’s tangible assets–inventory, purchase orders and accounts receivable–as well as its impressive patent portfolio.
“As with many entrepreneurial ventures, our metrics were not conducive to traditional bank debt. Intrepid was able to attract multiple lending entities that could understand our business and work with us to structure debt that reduced their risk and gave us the capital we needed to move forward,” stated Kasaba. “Intrepid’s ability to assimilate our business structure and communicate that to financial entities was essential to the completion of this round of funding,” he further commented. Ultimately, we secured a flexible financing package for the company allowing Artisan to purchase key raw materials from which to assemble its game-changing Z40 hauler.
Pleased with the outcome of the debt raise, Artisan called upon us to raise a round of growth equity that would enable it to scale production as well as R&D for future product releases. Their team was initially keen on the concept of bringing in a big-name venture capital or private equity firm, a few of which had already been calling on Artisan. At the same time, the founders were sensitive about equity dilution at this relatively early stage. We encouraged the company to open the process to some non-traditional sources including strategic players in and around mining, as we felt that industry participants would greater grasp the founder’s vision and see the potential, in turn, rewarding the company with a higher valuation. In the end, Artisan was able to significantly limit equity dilution by taking an investment from a strategic investor who provided a structured security rather than a straight equity investment. This was another example where having an investment banker-led process got the company a better result – one which they likely would not have even considered before our involvement.
Creating Value Ahead of a Sale
In addition to running competitive processes to secure financing or other capital transactions, your investment banker can help you think five steps ahead, providing advice from years of experience on how to create value ahead of a sale. Value creating activities include ensuring you have the right internal talent and building an all-star outside advisory team. In Artisan’s case, we determined that the company needed interim finance resources, a law firm with international reach, and a supply chain consultant to help lower its production costs. In each case, we were able to recommend a best-in-class provider who, like Intrepid, was willing to make an investment in working with an earlier stage business to become a life cycle partner.
As Artisan continued to grow and see market opportunities unfold, it had to decide whether to go at it alone, which would require another sizable capital raise, or to seek a transaction with a strategic acquirer. We worked with the company on various projection and dilution scenarios, based on different levels of capital raised, as well as on analyzing the competitive dynamics in the industry. Ultimately, together we decided that staying independent in the face of large multinationals pouring millions of dollars into their own battery-electric vehicle technology bore substantial risk, and we identified a number of strategic players that we believed would be interested in acquiring Artisan.
“At Artisan, we have always been extremely confident in our ability to imagine and manifest innovative technology that surprises and impresses our customers. But that is only the beginning of being a successful provider of equipment in the mining industry. A global infrastructure made up of thousands of technicians, and account managers with local access to parts inventories are critical for real acceptance as the primary supplier to a mine site. To build this infrastructure ourselves would have taken tens of millions of dollars and several years to complete. If we had chosen that path, we might have seen a large manufacturer catch up on the technology and successfully leverage their brand equity,” remarked Kasaba. “The timing was right to partner with the largest manufacturer of mining equipment in the world and leverage its existing global network. Sandvik realized that Artisan’s technology and first mover position could extend their leadership position into the foreseeable future,” he further mentioned.
Working on the sell-side transaction for Artisan was the culmination of a long, trusted partnership with the company. Due to our experience representing them on multiple prior transactions, as well as work on the intangibles–strategic planning, building the support team, and the like–we were able to position the company’s story effectively to the point where there were multiple strategic parties from around the world bidding for the chance to buy the business. Due to our relationship with the shareholders and management, we had a keen sense of which points to negotiate and what was most important to them going forward. From our many months in prior processes spent marketing the opportunity, we were acutely aware of the company’s strengths as well the potential challenge areas into which potential buyers would be digging. The result of the process exceeded our client’s wildest expectations and we firmly believed that had we not gotten involved much earlier on, the outcome would have been far less favorable.
Certain partnerships in life are undeniably valuable–your spouse and your caddie, and for instance, when it comes to getting sound advice throughout the life cycle of your business, having a seasoned investment banking team in your corner may be one of the most important decisions you will ever make. With Sandvik’s help and guidance, Artisan is building a complete line of battery-powered underground loaders and haul trucks. “Sandvik respects Artisan’s expertise in developing and implementing this technology and is providing invaluable guidance on how to scale up as we approach the inflection point in the mining industry,” Kasaba noted.