Darryl Derksen and his three partners already owned one-third of the business where they worked.
Looking for money to buy the other two-thirds, they found the Saskatchewan Entrepreneurial Fund.
Derksen, Bryce Floer, Don Park and Garth Hettrick recently completed their buy-out of Glenmor Grain Systems Ltd. in Prince Albert, Sask., with help from the fund.
All four have worked together for the last three years after the original owners began planning for retirement.
Glen Denham formed the company in 1982, and was joined a year later by Morris Sawchuk. Glenmor at first offered only grain dryers, but expanded to augers, hay and tillage equipment, feed and livestock equipment and various tractors.
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Agricultural products now represent 40 percent of the business, said Derksen. Forestry, mining, acreage and turf equipment account for the other 60 percent.
Denham and Sawchuk brought in their younger management team and set up a profit-sharing plan that allowed the partners to begin a buyout.
The value of the company was split into two-thirds preferred shares and one-third common shares.
Derksen said the partners were allowed to buy the common shares through the profit-sharing arrangement. When the purchase was complete, that triggered a mechanism to buy the preferred shares.
While the partners were researching how to get the money to do so, they learned of the entrepreneurial fund. It provides capital to small and medium sized businesses.
“We found out about this fund in the 11th hour from our credit union account manager,” said Derksen, who is general manager of Glenmor. The other partners act as sales, parts and service managers.
The provincial credit unions’ SaskCentral and the government’s Crown Investments Corp. capitalized the entrepreneurial fund. Regina-based PFM Capital manages it.
“(The fund’s) interest rate was better than the Business Development Bank,” Derksen said, referring to the federal lender. “Their pre-payment penalty was less than the government bank. The terms were much more desirable.”
He wouldn’t say how much the fund contributed to the Glenmor purchase but it was set up to invest between $200,000 and $1 million per project.
The fund can provide equity and take a short-term ownership position in a company or it can provide subordinated debt.
The Glenmor investment is a seven-year loan.
Dennis Estey, vice-president of investments for the Entrepreneurial Foundation of Saskatchewan, said within the next few weeks there will be other announcements of agricultural companies using the fund to aid in succession plans.
The foundation works with companies on business plans and helps them find capital. It will recommend certain companies to the entrepreneurial fund, which in turn approves and makes the investment.
“We take the potential investment to the 15-yard line,” Estey said.
A large number of businesses could benefit from the fund, he said. Baby boomers who started businesses that now employ up to 100 employees are beginning to retire.
“The numbers are just phenomenal,” Estey said. “Agriculture related businesses make up a fair number of the companies looking (for succession funds).”
The advantage to using a fund is that it is more willing than conventional financial institutions to take risk.
“The banks will only lend so much, and they want fixed assets to lend against,” Estey said.
The fund managers look at assets like the reputation of a company and the skill of the management team.
Derksen said the previous two owners had a long solid history in the industry.
“We weren’t four guys working in a shoe store who decided to buy a business,” he added.
“I have nothing but good to say about the fund. It made our opportunity very much easier.”
