Bridge Capital Investors Example

Bridge Capital Investors Example Bridge Capital Investors – Case Study Example ï » ¿Bridge Capital Investors As a result of the financial crisis in 1983, Hindman is faced several challenges in financing their company. Increasing construction costs are almost making the Hindman to run out of cash in financing the construction projects. Competition from other similar companies poses a threat to Hindman’s and Jiffy lube company (Jeffry, 2003, 519). However, Hindman has faced some financing alternatives towards provision of funds to the companies his has shares in, that is, the W.Jame Hindman ltd and Jiffy lube. Hindman with his group came up with the idea of financing their companies with their interests in which they had a large market share of the interests worth $3.4 million. To finance their business, they also had a second alternative of selling their partnership interests. In his interests, Hindman had no tax basis being an advantage to the companies since income taxes would have reduced their interests by a big portion as a result of selling their partnership interests (Jeffry, 2003, 520). . Also this second alternative received a back up from Ernst and Whinney who reviewed the option and saw it good. They helped Hindman and his team to carry out transaction that was tax-free exchange under the internal revenue code. The two transferred their interest to the Hindman’s company on the existing tax basis so as to be sold to finance the companies. Jiffy lube realized a lot of money from the sale of partnership interests. The Hindman strategy towards the financing of the company is to use their interests as the financial resources. In his strategy for Jiffy lube, hind man proposed that they adapt the McDonalds plan of the quick oil change business. In this strategy they were to have at least 270 centers put in operation by 1985 and by 1990 they should have already opened more that 1000 service centers. The lube Jiffy to which Hindman is a partner also plans to sale franchises to cater for some costs such as advertisement (Jeffry, 2003, 521). The Jiffy lube company plan to construct real estate and establishment of new franchises. 50% of franchises require financing from their real estates and construction financing. By 1985 the company plotted to raise $10 million to finance all the projects it had to undertake. This amount was to be sourced from Old Court Saving and Loans. The amount was enough to cater all needs at the point when the budget was done. For this case Jiffy lube was to work with Shearson Lehmon Brothers (Jeffry, 2003, 522). . However, as the Jiffy Lube project was in progress the Old Court Saving and Loans collapsed when it had financed only 25 out of 37 centers Jiffy lube had put in its plan. Other financial institutions were not willing to support the continuity of the project. After the collapse, the Hindman bargaining position was to look for another financial institution to complete the project. Hindman says that, what was to go wrong went wrong in this case. Hindman did not give up with the situation as he had to follow up with the Old Court. Despite his efforts he could not succeed as the state had snatched all documents and thus the first planned $10 million could not cater for the whole project. In the Bridge Capital Investors, Alex Brown & sons suggested that $10 million be raised in equity of the partnership real estate. The partnership in this case could get $40 million to replace the loan from Old Court and enable completion of the Jiffy Lube projects. Despite the confidence that hind man had over all the negotiation they had within the Bridge Capital investors and the financial institution as the Ernst and Whinney discouraged the Alex Brown not to get involved with anything that the Old court had involved with (Jeffry, 2003, 522). . The proposed financing by Jiffy lube did not work as it was planned and thus severe consequences put the Jiffy lube into a threat of collapsing. Being that the company could not wait for the funding from saving and loan, the company had to stop some of its cash payment on real estate purchases. The contractors to Jiffy lube line up while those people who expected to get money from franchises relied on the already completed service centers. Also a long delay to complete the project of Jiffy lube could also damage the strategy of this company (Jeffry, 2003, 523). . To avoid some of the laying consequences, Jiffy lube had to finance its construction. They had to use the cash they had kept in the reserve. Although the money from the company’s reserve was not enough for the completion of the project, Hindman had to fill the gap by doing personal financing. Also since the franchises were the main selling agents for the Jiffy lube products, the company had to give full support to them despite they needed more resources to be established (Jeffry, 2003, 524). . Despite the efforts by the Jiffy Lube Company and Hindman, there was still cash shortage. A meeting between the two entrepreneurs and Hindman a loan of one million was secured which was required to finance the arising needs in the company. After the Old court had negotiated with the state on its allegations, it later extended a loan of $4 million which could finance the projects Jiffy lube had initiated. Therefore, the Jiffy lube to enable its survival has followed short term strategies (Jeffry, 2003, 525). . Reference: Jeffry Timmons. New Venture Creation: Entrepreneurship for the 21st Century with Powerweb and New Business Mentor. New York: McGraw Hill, 2003, 519-525