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?
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.
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