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Hill Country Holdings Case Study

Case Study: Hill Country Holdings


Background:

The purpose of engagement was to provide financing for the active operating 50% owner to buy out the passive 50% owner.

Focus Strategies Service:

Focus Strategies completed a debt raise comprised of both senior debt and subordinated debt to enable the management buy out. In the course of engagement, Focus Strategies successfully navigated three significant challenges that emerged. First, the operating business continued to experience growth from the beginning of the engagement until closing. As a result, the terms of closing and the buy out price needed continual re-address throughout the transaction. Second, as a result of the company’s positive growth, it met an inflection point in which it was determined that the financing could be accomplished with senior and subordinated debt and that a new equity investor would not be required. Third, due to the nature of the business, which held a national brand license agreement, the traditional two-way intercreditor agreement between the senior debt holder and the subordinated debt holder expanded into a three-way agreement between the senior debt holder, the subordinated debt holder and the national brand licensor. Significant negotiations were required to sort out their respective competing interests. Throughout the entire process, Focus Strategies remained an important communication nexus between all parties, but especially between the active owner and the passive owner, whose relationship was strained.

Outcome:

Both owners were pleased to see the completed management buy out. The resulting 100% active operating owner has continued to grow the business and was thankful to Focus Strategies for structuring a debt transaction that enabled a single owner operator structure.


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