Case Studies

Private Equity Investment in a Family-Owned Business

Our client is a multi-generational uniform design and manufacturing company based in Dutchess County New York. One branch of the family, a father winding-down his career and his adult son and nephew taking a greater role in the company through a private equity Investment. A prominent private equity firm based in New York city would take control of the company but in stages based on a complicated earn-out formula that was tied to its equity stake as part of the over-all acquisition of the company in three years. The private equity firm was interested in keeping the adult son to lead and manage the company but not the father nor the nephew. The adult son did not want to be a part of the company and after the transition was looking to exit. To complicate matters, there was a lot of in fighting between the father, adult son and nephew in terms of their share of the phased buy-out and who should lead the company after the private equity investment. They did not keep adequate legal records of the company ownership and other related issues regarding management of the company.

The transaction required not only negotiating securities purchase agreement for the company but to also sort out the ownership structure of our client and resolving the management issues of the company. There were also two banks involved since there was also a debt component with one bank was the senior secured lender and the other bank was the junior debt as part of the capital structure. To create an additional layer of complexity the junior lender claimed that the senior lender did not correctly perfect its security interest in the company and therefore it was no longer the senior secured lender but rather the subordinate junior creditor. This impacting the capital structure of the company and hence how the private equity firm invested in the company over the three year period.

In representing the client, Tannenbaum Helpern navigated the complex, and often emotional, relationships among family members, capital structure and the lenders to complete the simultaneous closing of all the financing and stock purchase.

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