Posted by Matt Register

We spoke with Gordon Tunstall, Founder of Tunstall Consulting, about finding the required capital to properly scale a company in this National Advisor Showcase segment.

Please excuse any typos in this hasty transcript.

Matt Register: Hey guys, welcome back to Texas Business Radio. We’re going to continue to bring you the best guests humanly possible, to give you the information you need to grow your business, here in Texas. Tell you what guys, we’re to a segment, we like to call “National Adviser Showcase”. There’s a lot of very smart folks who come into Texas from all over the country to explain the CEO’s, give presentations and consult with CEOs and give them information that is, you know, quite frankly, world class. And when they come into town, we like to have them in the studio because it’s valuable information for you. And we call that our “National Advisor Showcase”. So that’s where we are right now. Get your calls in, 844-814-8144 is our 24 hour call in line. 24 hours, it means call now, call at 3 o’clock in the morning, doesn’t really matter to us. We going to get the experts in here to get those questions answered. We also monitor #TBR on Twitter. Or go to the web site, and get your questions asked there. And we will get them answered for you here on the air. I’m your host Matt Register, here as always with Jay Curry. Jay talk to me.

Jay Curry: Well Matt, the topic today is fantastic, “How to Finance Growth”. Now if there’s a CEO out there that doesn’t want to hear this, I’ve got to ask what you’re doing. This is, this is good stuff. There’s a lot of ways to finance growth that many CEOs never heard of. And I think Gordon’s going to bring some ideas.

Matt Register: Yeah, absolutely. And corporate finance there’s a lot of flav, flavors and layers of capital. And if you’re not familiar with this as you’re growing your business. There’s a lot of different ways, you come in, they all have an availability, they’ll have a different cost. And being able to navigate through that and find out which flavor is the most appropriate or what mix of flavors of those capitals are most appropriate to finance your growth is really important to get right. So we have all the way from Tampa, Florida, Gordon Tunstall is the CEO of Tunstall Consulting from Tampa. What’s going on sir? How are you? Welcome to the show.

Gordon Tunstall: Thank you. Nice to be here.

Matt Register: Tell me a little bit about Tunstall Consulting.

Gordon Tunstall: Tunstall Consulting is a firm that helps high growth companies access the capital markets. Typically we raise between a billion and $2 billion a year. Take…

Matt Register: Not at the same time, though. Right? I mean we’re talking about in smaller chunks, overall a billion.

Gordon Tunstall: We do about 30 transactions a year equaling a billion to 2 billion.

Jay Curry: That’s still pretty big, though.

Gordon Tunstall: With, some of those are IPO transactions where we work with companies when they’re very small, get them up to the point where they can go public with a first tier underwriter. So we’ve done 38 public offerings and we have 15 people in the firm. We do transactions all over the country.

Matt Register: Yeah, got it. So, whenever a company comes to you and decides they want to grow… by far the easiest way to grow is growth through acquisition. Right?

Gordon Tunstall: Correct.

Matt Register: There’s several ways to raise that capital. Now you concentrate, maybe not exclusively but heavily concentrated in one of those flavors. Talk to me a little bit about that.

Gordon Tunstall: Yes. So when you, when you go to acquire a company, what you want to do is to get as reasonable interest rates as possible for the acquisition of that company. So you start out with senior debt. There’s two types of senior debt. One is regulated bank. And since 2008 there’s been 125 new private banks, which can go far, farther into the company as far as financing than a typical bank can do.

Matt Register: Right.

Gordon Tunstall: And once you get done with maximizing the senior debt in a transaction, you then can move to mezzanine financing. Which is the second position behind the bank and has no amortization for five years, interest only for five years and is very effective in an acquisition because it gives you plenty of time to make sure the acquisition is correct, correctly structured before you have to start making payments. The reason that acquisitions are so beneficial to growing a business is that when you take your company and you acquire another company, there are expenses between the two companies that are duplicated. You’ve got two controllers, you get purchasing departments, you get a lot of duplicate expenses. So as a result, if you eliminate those expenses, you increase the combined EBITDA of the company. Unlike the banks, these other lenders, the private banks and the mezzanine financing companies will lend you against the adjusted EBITDA of the combined entity. So your company has a million, the other company makes a million dollars, 2 million pre-adjustment. You might have another million dollars of duplicate expenses, you now have $3 million dollars. Mezzanine will lend up to four times that adjusted EBITDA.

Matt Register: Well and that’s the reason to do the acquisition. Not only is there duplicated expenses. Right? Where one plus one equals three. There is actual synergy as well. Right? To where on top of that, there are reasons as companies particularly work well together. One may supply a product to the other. Other ways that it may make sense to even have one plus one equals four or more. Right?

Gordon Tunstall: Absolutely and we look for those synergistic companies. As an example, we did an acquisition with a building products company and they had 12 branches. We bought a company that had one facility and they ran 16 trucks. Well now, we just drop ship to the branches and we eliminated 14 trucks. You can imagine what the synergism was on that one.

Matt Register: Yeah, no and that’s the reason to do it. Right? That’s what you’re looking for when you’re looking at an acquisition targets and everything else. When you are, you know, being an investment banker, we deal with a whole lot of MES financing, a whole lot of senior debt. Is, are you finding there’s a lot of warrants or equity kickers that the mezz guys are requiring for some of these deals?

Gordon Tunstall: So typical mezz fund wants to make between 12 and 14 percent overall yield over five years. Most young companies that want to plow their money back into growing their business want to pay maybe 7 percent. So if that’s the case, then if the institution wants 12 percent, you have 5 percent that needs to be paid on an annual basis to make up for their yield. You can do that in two ways. You can do it with pick interest, which is payable in kind interest. That means at the end of the year if you want to pay the 5 percent, you can pay it. If you in fact want to invest that money back in your business, the institution will add to the principal. The other way is with a warrant. The warrant is an option to buy the stock of the company. They will figure out at the end of five years, how much of the company you have to buy back from them. They don’t want to own stock in your private company.

Jay Curry: That’s not what they’re after.

Matt Register: That’s right.

Gordon Tunstall: It’s an economic determination. So there’s a formula at the end of five years, where you buy back that warrant that makes up the difference between 7 percent and the 12 percent interest that the institution wants to make.

Matt Register: Yep, understand, that’s good. And so the companies you guys are looking for… Draw me a picture of what these companies look like. Are these middle market companies, upper middle market companies?

Gordon Tunstall: Yeah, so, maybe the smallest transaction that we can do in the marketplace is about a million dollars. And about the largest that we did was a high yield transaction for a management buyout, which was a billion one.

Matt Register: Okay.

Gordon Tunstall: So that’s kind of the range.

Matt Register: Yeah, got it, kind of all over.

Jay Curry: That’s a big range, yeah.

Matt Register: Yeah. No, no, no, I understand. So out of Tampa, Florida. What is easiest way for somebody to get in touch with you, should they want to?

Gordon Tunstall: They can call me. Certainly I talked to a lot of companies to see if they can qualify for this kind of financing. We also do acquisition searches. So if they don’t know what they want to buy, we can go out in the market and look for those. So they can call me in Tampa at 813-968-4461.

Matt Register: Got it. The web site is also As always guys, no reason to take notes. We’re going to have a link to that directly from the web site, there at As well as you’re able to see the entire broadcast in beautiful high definition video. OK. Well, Gordon Tunstall, thank you very much for joining us. How long are you here in town? You’re talking to a couple of groups here, huh?

Gordon Tunstall: No, just one.

Matt Register: OK.

Gordon Tunstall: I’ll be out of here tomorrow afternoon and I’ll be back again…

Jay Curry: Yeah, your coming back. I know you’re coming back for my Vistage group.

Gordon Tunstall: Yeah, I’m coming back.

Jay Curry: Your coming back several times.

Gordon Tunstall: I’m in Texas quite a bit this time of the year.

Matt Register: OK. Well good. Well, always glad to have you on. Guys this has been a “National Adviser Showcase” segment. Thanks for joining us. We got to pay a couple of bills. We’ll be back right after this. You really don’t even have time to go anywhere. And we’re just getting warmed up. We’ll be back right after this.

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About the Author
Matt Register

Matt Register

In addition to hosting "Texas Business Radio," Matt is an investment banker and serial entrepreneur from Montgomery, Texas. He is the owner of RREA Media and Register Real Estate Advisors and a Managing Director and Principal at Corporate Finance Associates. He has a BS from the United States Military Academy at West Point and an MBA from Rice University in Houston. You can read more about Matt HERE.

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