Purchase Order Financing: The Anatomy of a Deal

Paul Schuldiner, Rosenthal & Rosenthal

EMBRACING GROWTH

For the last several years, our client has been the exclusive North American distributor of European manufactured ice cream. This has positioned them well to negotiate contracts with some of the biggest food retailers, from Shop Rite to Fairway Markets. So when the nation’s largest grocery retailer approached them seeking to sell ice cream novelties under their premium private label brand, it was an opportunity they couldn’t refuse.

With sales through the roof, the retailer soon introduced our client to one of their largest dairy divisions. Our client was brought on board to provide several high-end ice cream novelty bars as part of their multi-product private label that is launching this year.

OVERCOMING CHALLENGES

For a variety of reasons, private label deals can be uniquely challenging. After our client’s initial successful test orders for the private label products, they received a large sales order that would launch the products to more than 2,500 stores nationwide. Not only did the client need additional capital to fulfill the large order on a short timeline, they didn’t want to lose sight of their broader focus on scaling the business. And of course they wanted to do all of that without giving up control of the company they were working so hard to build. That’s exactly when they met us.

The private label order was a crucial moment for our client’s business. Fulfilling the order on time would prove to the customer – and the grocery retail partner – that the company could handle large custom private label orders and pave the way for bigger deals. Assisting with that short-term need was critical, but we also wanted to help the company maintain their focus on long-term growth opportunities with new customers.

In scenarios like this, PO Financing is an ideal transaction capital alternative because clients can get access to the inventory financing they need to execute on a sales order, without diluting their ownership position. PO Financing is also appealing because it can work in tandem with other forms of financing, including a bank line of credit, factoring and asset-based lending.

SMART STRUCTURING

After extensive due diligence on the client’s overseas supplier, manufacturing quality control procedures and product import logistics requirements, Rosenthal was able to fund a $2 million PO Financing facility for the company. The deal involved funding cash against documents to cover 100 percent of the cost of the required inventory in transit, as well as all logistics costs. Under the terms of the deal, Rosenthal will be repaid shortly after the final products are delivered to the customer.

RECIPE FOR SUCCESS

We see so much potential for growth in the food and beverage space, not just in private label products, but in other innovative deal structures. Understanding the value of alternative solutions such as PO Financing could very well help firms reach their objectives.

For more information about Rosenthal and this transaction, please visit rosenthalinc.com/rosenthaltradecapital and contact Paul Schuldiner at 212-356-1703 or PSchuldiner@rosenthalinc.com.