Management Buyout

The Situation:
The senior management team of a business wished to buyout the retiring CEO and majority shareholder. They had negotiated a letter-of-intent with the CEO to repurchase his ownership interest and were willing to rollover all of their current equity ownership to help consummate the transaction.

The Company:
The business was a designer, importer and wholesaler of mostly licensed merchandise for college and professional sports. The company had a number of exclusive or limited agreements to market a variety of licensed products through college bookstores and mass merchandisers.

The Funding Request:
The management team required a minimally equity-dilutive financing package to repurchase the CEO’s ownership interest so that they collectively could become the majority owners post-transaction. Importantly, the financing package had to be structured to preserve adequate senior borrowing capacity to fund the inherent seasonal working capital peaks of the business.

The Solution:
Peninsula Capital supported the idea of the senior management team becoming the majority owners of the company, as we concluded they were the principal parties responsible for the company’s strong performance in recent years. After consulting with the management team about their twin goals of gaining a majority ownership position and ensuring sufficient working capital borrowing capacity, we engineered a two-tranche subordinated debt solution that included a current interest-paying senior tranche and a second interest-accruing junior tranche. The combined financing package resulted in minimal equity dilution to the management team and minimal operating cash flow drain to help fund working capital.

Management’s comments about working With Peninsula Capital Partners:

Why did you select Peninsula Capital to be your financial partner on this transaction?
“We chose Peninsula for a multitude of reasons, but the most important one for us was that we felt we lined up with their management/ownership in business style, personality and ethical code. At the end of the day, we were not interested in continuing our business with partners that we felt went against our core values as a company. Peninsula was also one of the few that we felt were truly interested in us running our business, not them. Many would say it, but the references did not always line up.”

What was Peninsula Capital like to work with prior to closing the transaction?
“Having not done this before, we were all concerned that the process would be worse than described and take twice as long as expected, but it was actually the opposite. While there is always work to be done in these types of transactions, it went very smoothly and as painless as could be expected. It was great to start out on a good note. The information we were given on the front end lined up with exactly what happened in the end.”

What was Peninsula Capital like to work with after closing the transaction?
“To date we have no complaints. Peninsula has been a great partner to work with and has been fair in every regard. It is apparent that we are all rowing in the same direction. A violation of covenants was my largest concern prior to finalizing the deal, but it has proven to be only what we were told at the beginning — just a warning signal to start a dialogue about performance and the issues impacting the company.”