Unearthing potential

For many years, Burnaby-based Terraprobe Geoscience Corporation operated as a combined service and research and development company becoming the largest provider of ground penetrating radar (GPR) consulting in western Canada.

However, as the company’s service operations grew, the day-to-day running of the business was drawing the company’s founder – an inventor by nature – away from his passion for research and development. To allow him to return to R&D, he decided to split the company and sell the service side of the business. Cue Dave Warkentin.

“While the GPR was totally new to me, as a business leader I could see Terraprobe had real growth potential,” explains Dave. “The biggest risk was the very specialized nature of GPR work, but with over 30 years of business experience I could immediately see areas where I could add real value by becoming the owner of the company.”

Unfortunately for Dave, Terraprobe’s unique work (providing specialized subterranean mapping services and equipment) and its limited hard asset base meant a straightforward term loan from the bank was a no-go; alternative financing was needed to fund the change of ownership. After looking at a number of options, Dave was swayed by the responsiveness of First West Capital and its subordinated debt offering.

Financing service businesses

“It can be challenging for service businesses like Terraprobe to secure traditional financing when being acquired because of their lack of tangible assets,” explains First West Capital's Kristi Miller.

“Big banks like collateral such as accounts receivable, inventory, equipment and real estate,” says Miller. “Yet businesses generally sell for a multiple of earnings or cash flow, resulting in goodwill – a really tough thing to finance traditionally. In the case of Terraprobe, the situation was even more complex as we had to separate the financial performance of the R&D division from that of the service business. Not every lender is prepared to do this kind of leg work.”

Had it not been for First West Capital’s ability to put a value on intangibles like goodwill and its willingness to separate the two distinct lines of business, Warkentin’s purchase would almost certainly have been financed through equity of one form or another.

“By looking at more than just the paper value of Terraprobe’s hard assets, we were able to provide Dave with $500,000 towards the purchase price. We helped him get the deal done when others would or could not,” says Miller.

The First West Capital experience

“The experience with First West Capital was excellent,” says Warkentin. As often happens with small business owners, this was my first move into sub-debt financing. What I was told up front is what actually happened. It was a straightforward, no-nonsense process. I wouldn’t think twice about recommending First West Capital to a business leader in my situation.”

The First West Capital advantage

First West Capital provides:

• Innovative and flexible subordinated debt solutions;
• A client-centered approach that results in exceptional service; and
• Responsive, firm and clear commitments that allow you to get on with what you do best—run your business.