Founding father sells to son: strong cash flows pave the way for family succession
Pacific Restaurant Supply is a full service dealer of high-quality commercial food equipment based in Vancouver, British Columbia. Like many businesses started by the baby boomer generation, the founding father was eyeing retirement and was looking to sell the business to his son.
Luke Evanow had worked alongside his father for eight years at Pacific Restaurant Supply and had independently managed all aspects of operations for more than two years. The company had been proactive in its succession planning and a shareholder reorganization in 2010 gave Luke half ownership of the business. Fast forward two years and, by 2012, it was time for Luke to buy out his father and assume full control of the business.
Asset poor but great cash flow
Although Pacific Restaurant Supply was in great financial shape and had generated steady cash flows and solid margins for a number of years and had no debt, it is a service business and, as such, has limited tangible assets. Because of the lack of hard collateral, the company had difficulty securing traditional bank debt to fund the partner buyout. Luke, because of his relative youth, had limited personal net worth to secure a loan and so was not in a position to borrow personally to fund the buyout either. Time was also a factor and, with Luke’s father not wanting to continue in an ownership position, vendor take-back financing wasn’t a viable option.
Sub-debt makes it possible
Pacific Restaurant Supply’s accountant, Dave Diebolt of Manning Elliott in Vancouver, suggested the company consider subordinated debt financing in order to leverage its strong cash flows. Sub-debt is a great tool for financing companies that can afford to service debt, but don’t have the kinds of hard assets traditional lenders like to take as security. The team at First West Capital has a wealth of experience in this kind of financing.
Says Kristi Miller, Co-Founder of First West Capital, “Luke Evanow impressed me with his energy, commitment and vision from the moment I met him. I had every confidence that he was the perfect person to take Pacific Restaurant Supply from good to great, and it has been an absolute pleasure watching the company grow and prosper. This was an opportunity for First West Capital to help a young entrepreneur take the reins and realize his dream. I am thrilled to see Luke’s, and the company’s, success.”
With funding in place, the buyout was executed and Luke has led Pacific Restaurant Supply to steady growth and banner results ever since. Today, the company has fully retired its sub-debt facility with First West Capital, owns both its East Vancouver warehouse and its manufacturing facility in Port Coquitlam, and has changed operating lenders to accommodate its rapid growth.
Luke says, “I had a signed offer and a great business strategy; all I needed was the right capital partner. This was a critical juncture and I didn’t want to give away any equity. Kristi understood my needs perfectly right from day one and I knew in my gut that I had found the right partner. By the following day she had already delivered a discussion paper on how I could acquire 100 % of the business. And ever since, she has been flexible in working with other lenders allowing us to acquire real estate, scale quickly and move forward with the right capital structure. Kristi and First West have been vital to my success as an entrepreneur.”
Luke’s tremendous achievements were acknowledged in 2014 when he was awarded Business in Vancouver’s prestigious Top 40 Under 40 Award.