Don’t Procrastinate: Get Your Money Before You Need It

Many years ago, I worked at what was then First Tennessee National Corporation, which is now First Horizon.  At the time, First Tennessee was a $2 billion bank holding company that owned about a dozen banks across Tennessee.

Last Week’s Lesson from Bob

My first and only boss during my tenure at First Tennessee (1975-1978) was Bob Rogers, then the Chief Financial Officer.  Bob was a great guy who taught me many things as a young analyst.  One of my first lessons from Bob is one I’ll never forget, and underlies much of the guidance of my last post, the ABZs of Business Valuation: A Blast from the Past:

Chris, you have to talk to the numbers until the numbers talk to you.

Today’s Lesson from Bob

Today’s lesson from Bob has to do with borrowing.  This is a lesson that could be instructive for many owners of private businesses who may be averse to borrowing.

Within a short time after my arrival at First Tennessee, I was made Assistant Treasurer because of a couple of changes that left that position vacant.  One of my roles as Assistant Treasurer was to manage a commercial paper portfolio, which had about $15 million in assets.

First Tennessee had grown to its then $2 billion in assets size through a series of acquisitions around Tennessee.  In those days, most acquisitions were accomplished in stock-for-stock transactions, so there didn’t seem to be a need for a reservoir of cash.

Being the bright guy that I am, I noticed that there was a corresponding liability of about $15 million dollars of long-term debt, which had more than a ten-year term to maturity and predated my hiring.

We had not done anything that required substantial cash for quite some time, and there was nothing on the horizon, at least that I could see, where substantial cash would be required.

The yields on the commercial portfolio didn’t quite cover the interest cost on the debt, so I knew I must be missing something. One day, I asked Bob why we had borrowed the long-term debt.  I’ll never forget his short, but enlightening response:

Chris, you get your money when you don’t need it.

While I was at First Tennessee, the company experienced significant real estate issues and went through a lengthy recovery during which earnings were hampered by non-earning real estate assets.  I earned my spurs in public company financial reporting during this period.

Then, in February 1976, while First Tennessee’s recovery was still underway but reasonably assured, the old Hamilton National Bank of Chattanooga was closed by the FDIC.  First Tennessee was a leading bidder, desiring a large stake in the Chattanooga market. For perspective, the Hamilton failure was, if memory serves me, the largest bank failure to that date (about $400 million in deposits).

Since it was a failed bank situation, the bidders provided their bids in terms of a deposit premium for Hamilton’s deposit liabilities.  We analyzed the situation internally at First Tennessee and recommended that a bid on the order of $12 million should get the deal.

We also retained an expert from our CPA firm who flew down from New York.  His analysis suggested that a $15 million bid should do it.

The day came for the bids, and our executives flew to Chattanooga.  As they got on the plane, the bid was raised to $16 million.  While on the plane, they raised the bid to $16.25 million – just in case there was a competing bid of $16 million.  On the elevator, the bid was raised to $16.251 million.  That’s a number that I remember!

First Tennessee was the winning bidder by a $4 million margin.

But this lesson is about getting money when you don’t need it.  Well, we never had to worry about the financing for the Hamilton acquisition, because, as you recall, Bob had raised $15 million a few years before – back when it wasn’t needed.

The deal is, had we had to raise that money in February 1976, we might not have been able to do it, and certainly, if we had, the terms would not have been nearly as favorable as the $15 million of debentures that Bob had squirreled away when First Tennessee didn’t need it.

Concluding Thoughts

First Tennessee was able to accomplish its largest acquisition to date in 1976 because of the prior planning of its CFO.

What about your company?  Or your clients’ companies?

Many performing private companies have no or very little debt and have accumulated considerable liquidity.  Their bankers are looking for good loans, but where are they?

What would a company do if it raised money that it doesn’t need today?

  • Pay a special dividend to shareholders, providing liquidity outside the company and decreasing the risks of its owners (assuming non-recourse debt).
  • Repurchase stock from one or more owners who need liquidity.  The rest of the owners would achieve enhanced returns and increases in their pro rata ownership.
  • Build the new plant that the company has been reluctant to build – because of debt avoidance.
  • Possibly make a well-thought out and planned acquisition that would enhance the company’s position.

I talk about all of these things in my book, Unlocking Private Company Wealth.

Remember, as I repeat what Bob told me,

Chris, you get your money when you don’t need it.

There’s another lesson in Unlocking Private Company Wealth.  It is that there is an opportunity cost in not doing what needs to be done when it needs to be done.  That lesson is this:

If you wait until it is too late, it is too late.

So think about this post and your company.  If you are an adviser, think about your clients’ companies – preferably in focused discussion with them.

If First Tennessee had not had a reservoir of cash back in 1976, it is possible that they would not have been able to make the Hamilton acquisition.

Be well,


New Book on Buy-Sell Agreements

The drafting of a new book on buy-sell agreements is almost complete.  The working title is Buy-Sell Agreement Handbook for Attorneys.  I am not an attorney.  As always, I write based on my experience as a businessman and valuation guy.

My previous books on buy-sell agreements have been written from the perspective of business owners as in the title of the most recent book: Buy-Sell Agreements for Closely Held and Family Business Owners.  Attorneys were, thankfully, one of the bigger markets for this book.

Many times, however, attorneys have said to me, in effect, “Chris, we like the ideas in your book.  Do you have some template language to help us implement them?”

Until now, unfortunately, the answer was a “Not yet.”  Now, this new book will contain detailed template language for several valuation processes for buy-sell agreements. I’m excited to get it to the point of making it available to attorneys, business appraisers, financial planners and, yes, business owners.

If you want to be notified when Buy-Sell Agreement Handbook for Attorneys becomes available, give me a quick email and we will put you on the list at

Please note: I reserve the right to delete comments that are offensive or off-topic.

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