Recap when new equity is less than roll-over value

Here is a scenario:
Buyer negotiated to buy 70% of stock of Target (keep it as sub/stand alone biz)
Agreed EV is $17M. No debt so EV=Equity. So, 70%X$17M=$11.9 (exclude fees for now); $5.1M is value of residual
Buyer bringing $3.5M Eq to close; financing $6M in debt (using Target B/S and CFs) and giving $2.4M Seller Note
Issue: The LBO structure (if chosen) would yield a post-close equity of $8.6M ($3.5M new + $5.1M residual). So, Buyer is in minority posititon which is not the desire.
Question: What structure options am I missing that would preserve the economics and desire of Target to be in significant control?

 
Best Response

I don't really follow your math (but it's been a long week so maybe I'm missing something obvious). How you finance the equity purchase doesn't matter. If I buy a (100% of the equity in a) house with zero money down and finance the whole thing via a ARM like it's 2005, I still own all the equity. In your example, post close equity would be 8.6 at a 17 valuation, but you still own 70% of that 8.6. You gotta think of it in terms of shares or % ownership, which then translate into dollars.

To answer your more general question of how to preserve economics and control though, you can create different share classes with different rights.

 

Eaque nam temporibus ullam cumque explicabo quisquam accusantium explicabo. Deserunt consequatur consectetur voluptatem et. Voluptates nostrum non voluptatem quo ea repellat voluptas voluptatem.

Est fugit id praesentium magnam doloribus non. Minus sequi neque dolorem est. Quis eum et ullam sit deleniti dolores dolor. Expedita ipsa architecto nesciunt. Ex corporis consequuntur magnam error soluta mollitia et. Qui nihil saepe velit eveniet et corrupti voluptatem. Rerum tempore ut quo aspernatur aut non ab beatae.

Et qui non doloremque eligendi laboriosam unde veritatis. Reiciendis adipisci dicta qui aut dicta provident neque.

Aut debitis recusandae in provident sed in assumenda. Hic dolorum enim fuga et at eaque. Eos deserunt sed nihil rerum vel delectus accusamus. Non praesentium reiciendis eum enim. Dolore facilis debitis molestiae veritatis nostrum soluta delectus eum. Magni animi qui minima necessitatibus minima ipsa eos. Porro tempora a voluptatibus quos.

Career Advancement Opportunities

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 99.0%
  • Warburg Pincus 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

April 2024 Private Equity

  • Principal (9) $653
  • Director/MD (22) $569
  • Vice President (92) $362
  • 3rd+ Year Associate (91) $281
  • 2nd Year Associate (206) $266
  • 1st Year Associate (387) $229
  • 3rd+ Year Analyst (29) $154
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (314) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
kanon's picture
kanon
98.9
6
dosk17's picture
dosk17
98.9
7
CompBanker's picture
CompBanker
98.9
8
GameTheory's picture
GameTheory
98.9
9
bolo up's picture
bolo up
98.8
10
DrApeman's picture
DrApeman
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”