Where's the Money? By William Cate July 2004 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
To create a US$100 million Multinational Corporation will take US$100 million. So, your question should be: where is the money coming from to make my VCP proposal work?
The Beowulf Investments' PIPES
As a first step, my firm, Beowulf Investments (BI), will invest US$1,300,000 to create your client's US$5,000,000 company. As I've outlined in my Primary Source of Business Capital article, BI recover its risk capital within sixty days. (Once done, we are willing to wait the necessary years to achieve our profits, along with your company insiders.) To do so, BI must sell some of its shares to the public. The resulting increased float creates the imperative to bury the shares and reduce the effective float, as discussed in my article, Burying the Stock.
In theory, Beowulf Investments could recycle the same US$1,300,000, or any amount of money, into any client company without incurring a long-term risk. However, this isn't in anyone's best interests.
Our goal is to supply the money to start the M&A process. We strongly believe that a public company M&A strategy will create the money needed for the company to grow. (In the past four years, Cisco Systems, for instance, even with some major errors, turned their company into a current $147B giant using this process. I can hardly argue with such a gargantual success. So what we're doing here is not reinventing the wheel.)
In the first year or two, it is possible for the Client Company to have access to a key acquisition, without having the cash to buy it. In that case, Beowulf Investments will supply that cash.
Our Clients are Printing Their Own Money
Stock is money. It's a paper currency like all paper currencies. Most public companies print far too many shares and suffer the inevitable consequences of seeing their currency collapse.
Used as money, our pubic company client's shares will supply 75% of the cash they need to create a hundred million-dollar company.
Our public company client can buy private cash-producing assets, using its shares. These shares will hold a constant exchange rate value with the U.S. Dollar. The owners of the private, cash-producing company, acquired by our public company as it grows to being a twenty million dollar company, will have sold for far more to our public company client than they could have sold to another local private buyer.
The reason for that is that the 2-for-1 stock split will give the original owners nearly double their firm's actual value due to the split. For example, our public company client will use US$1 million of Beowulf Investments' money and US$3 million of their shares valued at US$20/share. Thus the acquired company will own 150,000 shares of our public company client. With the 2-for-1 split, they will own 300,000 shares valued at US$20/share and worth US$6,000,000. Our public company client has effectively paid these private company sellers, US$3,000,000 more than their private companies were worth.
The private company sellers MUST Pool and Vault their shares until our client's public company is sold at Market Capitalization. Thus, the acquisition for shares will not cost our public company client excessive cash to maintaining its strong share price.
At the time of the acquisition
of your company by an industry giant, all the private company sellers who have sold their companies to our public company client, will benefit enormously by the sale.
At the time of acquisition of our public company client, the private company owners used in our example and acquired before our client had US$20 million in revenues should see the value of their 300,000 shares double to US$40/share and be worth US$12,000,000. For a private cash-producing asset valued at US$4,000,000, the owners selling to our public company client will be effectively paid US$13,000,000 for something that was actually worth US$4,000,000
At the time of the acquisition of our public company client, the private company owners who were acquired after our public company client had US$20 million in assets will see their shares double in value. Thus, any private company selling to our public company client will make more money than selling to a local private buyer.
Client Profits Should Be the Source of Cash for Acquisitions
The reason that our clients are buying cash-producing assets is to use those profits to buy still more cash-producing assets, following the successful CISCO system.
You must invest your profits to grow your company. The fact you can use your shares to leverage your profits doesn't reduce or eliminate the need for profits.
It's a fact that companies make less profit in high tax countries rather than low tax countries. It's equally a fact that profits earned in any restricted currency have little demand outside the country printing that currency. Thus, the logic for tax planning that results in an after-tax 20% profit in any free-trading currency. And a key reason for non-US companies to take their companies public using the US system.
The Multinational Advantage
As noted in my article Invest in Multinational Corporations, foreign investors in most countries receive massive incentives that offset at least 50% of the costs of building local factories for exported products. For some of our clients, these incentive programs are worth tens of millions of dollars. If you wish to succeed powerfully in today's world, you must take advantage of multinational markets.
If You Have Money, You Don't Need Money
There is a saying in America that banks only lend money to businesses which don't need it. If you consider the proposed balance sheet of your company once you pass the US$20 million in revenues mark, you will find it easy to borrow money in Western countries. Borrowing money, to increase revenues well beyond the cost of that money, makes sense.
There is never a shortage of investment capital. There is always a shortage of sensible Risk/Reward investments for that money. Any proposal that doesn't heavily rely upon risk capital is always more attractive to investors than one that is little more than a gamble with the odds against the investors.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
About the Author
He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
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