Werklund Capital's responsive investment strategy allows us to invest in diverse companies, at various stages of business, and across most industries.

From a structuring perspective, and dependent on individual deal factors, we customize our investment instruments to ensure maximum goal alignment with our investees.

Our most recurrent types of financing include:

Our investees have a capable knowledge of corporate finance, however for newcomers and potential investees, a brief description and general terms of application of each of these financing instruments is provided for clarity:

Subordinated Debt

Subordinated debt is a loan secured by collateral on which the lender has a second position behind the senior debt lender. Because of the higher risk to the subordinated debt lender, some type of additional compensation is usually necessary, typically in the form of warrants or options on the company's stock. Often, repayment can be arranged as interest only for some portion of the term of the debt.

  
  

Bridge Lending

Also known as interim financing, gap financing or a swing loan, as the term implies, these loans "bridge the gap" between times when financing is needed.

A bridge loan is interim financing until permanent or the next stage of financing can be obtained. Money from the new financing is generally used to re-pay the bridge loan, as well as other capitalization needs.

Bridge loans are used in venture capital and other corporate finance for several purposes:

  • To inject small amounts of cash to carry a company so it does not run out of cash between successive major private equity financings
  • To carry distressed companies while searching for an acquirer or larger investor (in which case the lender often obtains a substantial equity position in connection with the loan)
  • As a final debt financing to carry the company through the immediate period before an initial public offering (IPO) or an acquisition.

Bridge loans are typically more expensive than conventional financing to compensate for the additional risk of the loan. They typically have a higher interest rate, points and other costs that are amortized over a shorter period, and are backed by some form of collateral or equity participation. The lender also may require cross-collateralization and a lower loan-to-value ratio.

  
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Private Equity

Private equity, in finance, is an asset class consisting of equity securities in operating companies not publicly traded on a stock exchange.

Private equity investment provides a target company with working capital to nurture expansion, support new product development, fund new technologies, make acquisitions, strengthen a balance sheet, or restructure the company’s operations, management, or ownership.

Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, a private equity firm buys majority control of an existing or mature firm. This is distinct from a venture capital or growth capital investment, in which the investors invest in young or emerging companies, and rarely obtain majority control.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

Transfer of private equity is strictly regulated; therefore, any investor looking to sell their stake in a private company has to find a buyer in the absence of a marketplace. Returns on private equity generally occur in three ways: a merger or sale, an IPO, or a recapitalization.

  
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Private Investment in Public Companies

Private Investment in Public Companies (PIPE) is a form of equity financing in which a private investment company purchases a certain amount of stock in a publicly-traded company at a discount from its market value.

This is a means by which a public company can quickly access the equity markets -- they already have public shares trading and this is an additional offering to investors under a securities purchase agreement. Public companies commit to PIPE in order to raise equity without going through the expense and regulatory issues involved in making a secondary offering. This form of financing is especially popular with small and medium-sized publicly traded companies, and usually occurs when equity valuations have fallen and the company is looking for new sources of capital.

There are two main types of PIPEs: traditional and structured. A traditional PIPE allows the private investment company to simply buy stock in the publicly-traded company. This is a direct form of equity financing. On the other hand, a structured PIPE involves the publicly-traded company issuing a certain amount of convertible debt (common or preferred shares). This carries less risk for the private investment company and does not dilute the publicly traded company's shares outstanding, at least not immediately.

  
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Real Estate

In general terms, real estate is property consisting of a piece of land, including the air above it and the ground below it, any buildings or structures permanently fixed to it, and improvements thereto. Real estate can be grouped into three broad categories: residential, commercial and industrial.

Location, Location, Location: Unlike other investments, real estate is dramatically affected by the condition of the immediate area where the property is located. With the exception of a national or global recession, real estate values are affected primarily by local factors such as the availability of jobs, crime rates, and property taxes.

In the context of private equity, real estate typically refers to the riskier end of the investment spectrum including "value added" and opportunity funds where the investments often more closely resemble leveraged buyouts than traditional real estate investments. Certain investors in private equity consider real estate to be a separate asset class.

  
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Michael McGee, M.Sc.Fin., Managing Director<br />Private & Affiliate Investments
"We believe good partners are defined not by how they behave when things are going well, but how they work with you to turn things around when they are not."

Michael McGee, M.Sc.Fin.
Managing Director
Private & Affiliate Investments
Werklund Capital Corporation
Private & Affiliate Investments
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