NEW YORK - Small and midsize companies increasingly are becoming fertile ground for the type of sophisticated financial techniques usually reserved for larger corporations.
A case in point is a recent leveraged buyout of a former International Business Machines Corp. plant in the Bedford-Stuyvesant section of Brooklyn, N.Y.
Chase Manhattan Bank helped finance and structure a $6.5 million management-led buyout that used various layers of debt and equity financing.
Apart from helping to save 240 jobs at the former IBM plant, Chase said, the deal illustrates how commercial banks have moved beyond providing just plain-vanilla loans to their small and middle-market business customers.
Leonard Walker, a Chase vice president, said the bank is also offering sophisticated derivative products, such as interest-rate swaps, caps, and collars, to its middle-market cutomers.
Chase is not alone in trying to push corporate finance techniques to its small and medium-sized business customers.
Chemical Bank, which is considered the leader in middle-market lending in the New York metropolitan area, set up an investment-banking division to serve these customers five years ago.
Increasingly, middle-market business are taking advantage of these product offerings, a Chemical spokesman said.
In the buyout of the former IBM plant, Chase helped to provide a total of $9.5 million in financing - enough to cover the purchase price and provide working capital for the plant, which services IBM-made personal computers.
Chase provided two separate loans totaling $5.5 million. A $2.5 million term loan helped finance the purchase of the plant, while a separate $3 million revolver will provide funds for working capital.
The remainder of the $6.5 million purchase price was financed with a $2.75 million loan from the New York State Job Development Authority, a $1 million equity investment by IBM, and a $250,000 equity investment by the plant's management.
Employees Will Own 80%
Eventually, employees of the plant, now called Advanced Technological Solutions Inc., will own 80% of the company's common stock through an employee stock ownership plan, and management's ownership will shrink to 20%.
IBM has awarded the new company a five-year contract worth about $900 million.