1. Deadly Debt: Using Long-Term Debt for Short-Term Needs
One of Mauloa’s portfolio companies was seeking to use long-term debt to generate owner liquidity because the company’s cash was getting sucked into working capital as the company grew. Instead, they opted for a Mauloa equity investment to generate owner liquidity. Without the burden of debt and a stronger balance sheet, the company has generated over $50 million of distributable cash thus far, seven years post-Mauloa transaction.
Long-term loans are fine for investments, like buying a company or new equipment. But using long-term debt for owner liquidity is risky. It solves a short-term problem with long-term consequences and restricts your company’s ability to grow.
2. Lender Monogamy: Relying Too Much on One Lender
One of Mauloa’s portfolio companies had its lender suddenly put the company into default not because of missed payments but because of faulty paperwork and internal compliance. The lender was having regulatory issues. Mauloa stepped in with an equity investment and helped them find a new lender. With its new stability, the company prospered and generated $145 million of distributable cash, including a sale, 4 years post-Mauloa investment.
It’s great to have a strong relationship with your bank, until they walk away. That happens more than you think and not always because of anything you did wrong.
Mauloa is a long-term investor who provides owner liquidity and working capital to family-owned businesses to accelerate growth. We invest $10-30M for 30-40% of your middle-market company without using debt, ruining your culture, or ever forcing you to sell. Instead, we all receive regular cash distributions from profits, which keeps everyone’s interests ENDLESSLY aligned. Qualified companies must do over $20M in revenue, generate at least $3M in cash flow (not EBITDA), and be led by management teams that we “like, trust, and admire.” Originally founded in 2007 as Sachs Capital, Mauloa, which means “endless” in Hawaiian, has deployed over $200M and partnered with more than 20 companies, mostly in business services.