We believe that we can assist the owners of established companies obtain growth capital on attractive terms. The funds will be received by the company for a multiyear revenue royalty based on revenue growth above annual revenues prior to the funding. The royalty will be able to be company terminated on terms negotiated prior to the funding.
The royalty rate of the royalty will reflect the terms negotiated regarding magnitude of payments made within stipulated periods and investor risk level factors. The investor’s risk levels relate to being assured of investment recapture.
Since the investor’s sole goal is the royalty issuing company’s revenues exceeding an agreed level, there is no requirement for data regarding the company’s profit or distribution.
As an example, if the company already had annual revenues of $10.0 million and projects an increase of annual revenues of 15%, for 10 years, after receiving $1.0 million for the sale of a 10-year, 10% royalty, this is what could be the result. A 20% NAT profit margin is assumed in the calculations for this example.
It should be noted that the revenues are those exceeding the $10.0 million the company was generating prior to the financing and that a recapture of the investor’s royalty cost requires more than 4 years. Also, that royalty payments by the company are tax deductible to the company and tax-free to the investor until a full recapture of invested capital has been achieved.
There could be a 2X company right of redemption in the terms of the royalty. This would permit the company to terminate the royalty, at any time within 5 years, at twice the amount paid by the investor for the royalty. The cumulative amount of the royalties paid by the company to the investor would be a credit towards the amount due were the redemption right to be exercised.
Therefore, if the revenue projections were achieved and the prospects believed by the company to be favorable, the additional $836,439 due to be paid within the 5 years to the investor, in addition to the $1,163,061 which would have been already paid, would result in a significant savings to the company. Of course, the company could, at any time and for any amount, seek to repurchase the royalty from the investor.
Royalties are contracts between 2 parties, the company issuing the royalty and the investor buying the royalty and are therefore modifiable as the parties agree.
We can help, both investors and royalty issuing companies, and the use of royalties can be of great benefit to both parties.
Arthur Lipper, Chairman mailto:arthurlipper@gmail.com
British Far East Holdings Ltd.
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