|Aethlon Capital Helped to Keep Cirrus Flying High|
Aethlon Capital of Minneapolis, a small investment banking boutique, was the matchmaker that married Crescent Capital of Atlanta and its $100 million to Cirrus Design, the promising manufacturer of single-engine aircraft.
The deal provides Duluth-based Cirrus, which has produced 200-plus planes and has orders for 550 more, the requisite capital to retire debt and expand production from five to at least 10 aircraft daily by late 2002.
"Everyone also expects Cirrus to be cash flow positive by the end of 2002," said John Dyslin, a director of Crescent who oversees its 61 percent interest in the company. "Cirrus is the best value in entry level general aviation today among people who spend $200,000 to $300,000 for an airplane."
Sima Griffith, a principal and founder of five-year-old Aethlon, helped Cirrus raise several million dollars through three rounds of financing with private investors dating to its 1996-97 development of the flagship SR20 aircraft, complete with a whole-plane parachute.
Company officials raised millions more from Duluth residents, friends, relatives, the city of Duluth and the state of North Dakota, home to another Cirrus manufacturing facility in Grand Forks.
Founders Alan and Dale Klapmeier, the engineers who developed Cirrus' predecessor company in a Wisconsin barn in 1986, by 1999 had delivered a fuel efficient, safe aircraft that was generating rave reviews within the industry and certification by the Federal Aviation Administration.
"Everybody was impressed with the plane," said Roger Jones, a former Dain Rauscher investment banker who looked at Cirrus as an IPO candidate four years ago and who now works with Griffith. "The question was, could they produce them in sufficient volume."
Cirrus raised more money from private investors to bring it to factory line production in 1999.
But by early this year, the company had accumulated $55 million-plus in non-mortgage debt and lacked sufficient capital to expand production to the point where it could become profitable.
Cirrus' 200 investors were getting nervous. Cirrus and Griffith were shopping for $25 million.
In February, Griffith approached Dyslin, an acquaintance, after she read about Crescent's decision in December to buy majority interest in Minneapolis-based Caribou Coffee.
Dyslin & Co. spent several months kicking the tires and negotiating.
"We wanted majority control," Dyslin said. "And $25 million was not enough. It would stop some bleeding, but it wouldn't capitalize them well."
Crescent, a deep pockets investor backed by First Islamic Investment Bank of Bahrain, bought 61 percent of the company at $4.49 per share.
Of the proceeds, $22.6 million will be distributed to early round investors and founders, $55.5 million will pay down debt and $22 million will be used as working capital to expand and accelerate production and product development.
A new vice president of operations will join the company, and a production efficiency consultant is on the way. Cirrus has a secure financial platform and a better outlook.
The 1996 investors make out well. In return for their stock, purchased at a split-adjusted price of $1.65, they got $1.40 in cash plus 1.56 shares of common stock valued at $4.49 per share.
Several sets of preferred stock have been converted into one class of common stock at the $4.49 price. The company expects to go public one day or be acquired by a larger industry player.
Investment bankers typically charge up to 3 percent of the face value for arranging such deals. Griffith won't comment on Aethlon's fee.
Regardless, it's the biggest deal the three-partner firm has done.
"There's great satisfaction," Griffith said. "It was a very high-risk deal back in 1996. The initial shareholders have done well. And we've really gotten Cirrus off the ground with this round of financing."