Quick Question about Search Fund/LBO Cap Structure

Might be overthinking this one (probably because its Friday afternoon), but would appreciate some insight into this scenario, as I am currently working it out:

An investment group seeking to roll three companies into one (NewCo) obtains leverage for 40% of the purchase price (say $10MM, so $4MM leverage). The owners of the original companies decide to roll a combined $2MM, while the investment group puts in $1MM. To cover the last $3MM, the investment group finds a passive PE shop who would like to invest. The investment group assumes rolls (sort of like what is done at a search fund) at NewCo to build it up, and in three years at the exit, NewCo is valued at $20MM, and the debt has been paid down to a balance of $3MM outstanding at the time of exit.

Trying to determine: 1. Initial cap table: who owns what percentages of the company? 2. Waterfall at final exit: Given the debt reduction and significant increase in value, how is this distributed among owners? Would the Investment Group that created the deal effectively reap most of the reward?

Any insight would help. Thanks

2 Comments
 

Hi AAbatteries, any of these threads helpful:

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Or maybe the following pros can chime in... gryphus @RandomUser55" jsong

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