Josh Harmsen

Josh Harmsen, principal, Solis Capital Partners

Often, business owners frame their own future in stark, binary terms — either I keep the business or I sell it. This binary thinking becomes most pronounced as business owners begin to contemplate retirement or an ownership transition. In reality, there are a variety of options that can span those two outcomes. For many business owners contemplating a retirement or transition event in the next five years, simply keeping or selling are suboptimal outcomes — either tying up critical value that could otherwise be used to diversify or foregoing the potential upside value in their business. In addition, these binary outcomes often overlook other important value drivers for business owners such as legacy, succession, well-being of current employees and the continuity of their current business. When evaluating which options to pursue, it is critical for business owners to first establish clear goals that define what they want to accomplish and when. This includes an honest assessment of their personal and professional desires and other value drivers (including those mentioned above). While these options each present unique opportunities and risks, they offer business owners a more tailored and optimized approach to achieving their future liquidity, retirement or transition objectives. Mezzanine debt recapitalization A mezzanine recapitalization will often allow business owners to seek partial liquidity or growth capital, without significantly diluting their ownership. Business owners can use the proceeds to diversify their holdings, while retaining equity control and the potential upside of the business. However, this option will add incremental, high coupon leverage to the business and could limit operational flexibility in periods of economic or business distress. ESOP — employee stock ownership plan ESOPs allow business owners a tax efficient roadmap toward partial or full liquidity while creating a mechanism for transferring ownership to employees. This allows business owners to maintain short-to-medium-term ownership and helps to preserve business consistency and legacy. It also rewards employees for their hard work and loyalty. However, once the ESOP has been established, it can significantly restrict ownership flexibility. MBO — management buyout MBOs allow business owners to achieve either partial or full liquidity while maintaining operational consistency throughout the organization. The MBO also rewards management’s loyalty and performance with the opportunity to acquire a significant stake in the business. However, MBOs often require management to partner with outside equity or debt providers — which can be time consuming and introduces new partners and influences on the business. Minority investment Minority investments from an outside investor (either institutional or individual) will allow business owners to seek partial liquidity, or growth capital, while maintaining a majority stake in the business going forward. The minority partner can bring valuable outside perspectives and skill sets to supplement your own. However, most minority investors tend to be only passively involved and often require onerous ratcheting provisions that could give them control if the business fails to meet operational objectives. Partnership transaction A partnership transaction will allow business owners to seek significant immediate liquidity while preserving some ownership and elements of control in the business going forward. Business owners can use the proceeds to diversify their assets, while maintaining potential upside in the business. The new partner can bring many valuable strategic and financial resources to bear to strengthen the business and pursue growth and value enhancement initiatives. However, new partners will seek elements of control and often utilize leverage to affect the partnership. Understanding the many options available to business owners will help lead to more tailored and optimal achievement of personal liquidity, retirement and transition objectives. Josh Harmsen is a principal at Solis Capital Partners (www.soliscapital.com), a private equity firm in Newport Beach, Calif. Solis focuses on disciplined investment in lower middle-market companies. Harmsen was previously with Morgan Stanley & Co. and holds an MBA from Harvard Business School.

Ingersoll-Rand to spin off security business: sources

NEW YORK, Sun Dec 9, 2012 — Ingersoll-Rand Plc is expected to announce as soon as Monday it will spin off its security division, two people familiar with the matter said, as the industrial conglomerate cedes to pressure from activist investor Nelson Peltz to unlock more shareholder value.

The company, which has a market value of more than $14.5 billion, also plans to buy back shares and increase dividends, one of the sources said.

The spin-off, buybacks and dividend hikes come as part of a strategic review undertaken by Ingersoll after Peltz’s Trian Fund Management LP acquired a stake of about 7 percent and proposed a break-up of the company. Peltz joined the company’s board in August after three months of agitating for changes at the manufacturer.

Ingersoll’s security technology division — which makes mechanical and electronic locks as well as steel doors — had operating income of more than $330 million in 2011 on revenue of $1.63 billion.

The sources, who declined to be identified as the matter is not public, did not put a value on the division. Ingersoll and Peltz declined to comment.

Peltz has, among other proposals, suggested separating Ingersoll’s main business units into three standalone publicly traded companies focused on air conditioning and heating, security, and the remainder of its industrials businesses.

Some analysts agreed, saying that Ingersoll’s shares were undervalued because of its disparate businesses. Several other diversified conglomerates have also decided to break up, often under pressure from activist investors.

Chinese group to buy AIG’s plane leasing firm for up to $4.8 billion

NEW YORK/HONG KONG, Mon Dec 10, 2012 — American International Group Inc. is to sell nearly all of ILFC, the world’s second-largest airplane leasing business, to a Chinese consortium for up to $4.8 billion, giving the fastest growing aviation market easier and cheaper access to planes.

Chinese firms have shown interest in aircraft leasing before, and the deal would give China access to a global network of about 200 airlines in 80 countries. China is already ILFC’s largest market with 180 planes operating there, giving it 35 percent market share.

“It’s the biggest deal we have in the aircraft leasing world and it’s very ambitious,” said Paul Sheridan, head of Asia at aviation consultancy firm Ascend Advisor. “We believe there are not enough aircraft on order in China at the moment. It will help Chinese airlines get more aircraft.”

The world’s two largest planemakers – Airbus, owned by aerospace group EADS, and U.S. rival Boeing — have predicted demand for $4.5 trillion worth of passenger jets over the next two decades, with about two-thirds of new planes sold in the Asia-Pacific region, and China as the biggest single market in value terms.

Equifax settles U.S. charges of improperly selling consumer data

WASHINGTON, Wed Oct 10, 2012 – Consumer credit rating company Equifax Inc. has agreed to pay $393,000 to settle allegations that it improperly sold information on consumers who had fallen behind on their mortgages, the Federal Trade Commission said on Wednesday.

Equifax Information Services LLC improperly sold 17,000 such lists of consumer information to Direct Lending Source, which turned around and sold them to companies under investigation for allegedly duping consumers with mortgage rescue scams, the FTC said.

Direct Lending Source agreed to pay a $1.2 million civil penalty.

Equifax ended its business relationship with Direct Lending Source and its affiliates in the summer of 2011, said Equifax spokesman Tim Klein.

“We reached an agreement with the FTC regarding issues they brought to our attention regarding Direct Lending, which was a former customer of Equifax,” Klein said. “As part of this settlement we did not and do not admit to any wrongdoing.”

Direct Lending Source could not be located for a comment. It does not appear to have a website and a telephone number listed as belonging to the company has been disconnected.

In the past several years, the FTC has filed more than 40 cases against companies that promise mortgage relief services but fail to deliver, the agency said.

T-Mobile USA in $2.4 billion tower deal with Crown Castle

NEW YORK, Fri Sep 28, 2012 – T-Mobile USA, the No. 4 U.S. mobile provider, has agreed to sell the rights to operate 7,200 of its wireless broadcast towers for $2.4 billion to Crown Castle International Corp to help its parent Deutsche Telekom pay back debt.

Crown Castle also has the option to pay another $2.4 billion to buy the towers outright from T-Mobile USA at the end of the lease term for each tower, under the deal announced Friday.

T-Mobile USA has been trying to sell its wireless towers since its proposed purchase by AT&T Inc failed last year due to regulatory opposition.

T-Mobile USA, which is spending $4 billion on a network upgrade, has also been looking for ways to become more financially independent from its parent.

Crown Castle estimates the towers will generate about $125 million to $130 million in adjusted funds from operations before financing costs in 2013.

The towers will have enough space to accommodate at least one additional wireless service provider customer on each tower without significant incremental capital, Crown Castle said.

As part of the deal, T-Mobile USA committed to maintaining its communications facilities on the towers for at least 10 years with annual rent increase provisions tied to the consumer price index.

T-Mobile’s rent includes the rights to complete its current network modernization on these sites.

Deutsche Telekom said the company had multiple bidders for the assets but declined to name them.

Analysts have said other companies that considered the towers included American Tower Corp and SBA Communications Corp.

Valero may raise $3.5 billion through retail arm auction: sources

NEW YORK, Thu Sep 27, 2012 – Valero Energy Corp. is selling its retail business, which operates gas stations and convenience stores, through an auction that could fetch more than $3.5 billion and has lured the interest of private equity firms and convenience-store operators, people familiar with the matter said.

Valero’s retail business, which consists of nearly 1,000 U.S. stores and some 775 units in Canada, has around $450 million in annual earnings before interest, tax, depreciation and amortization and could sell for around 8 times EBITDA, or about $3.5 billion, two of the people said.

The U.S. refining company had said in July it would split off its gas station and convenience stores, and cited a tax-free spinoff to shareholders as one of the options.

Valero, which is being advised by Credit Suisse Group on the retail split, has sent financial information about the unit to interested parties and is expected to receive initial offers in October, those familiar with the matter said.

Several big private equity firms, including TPG Capital LP and Carlyle Group LP, are among the parties that are taking an initial look, one of the people said.

Large convenient store chains such as Alimentation Couche-Tard Inc. or 7-Eleven would also likely have some interest, two other people said.

Tempur-Pedic to buy rival Sealy as specialty bed dominance slips

LEXINGTON, Ky., Thu Sep 27, 2012 – Tempur-Pedic International Inc. will acquire rival mattress maker Sealy Corp. for about $242 million and assume about $750 million in debt, as rivals snip away at its once-dominant position in specialty beds.

Tempur Pedic, which pioneered the specialty beds market with foam-based technology developed by NASA, is attempting to regain market share from fast-moving rivals that are also chasing the burgeoning market for foam mattresses, popular with aging baby boomers.

The offer price of $2.20 per share represents a 3 percent premium to Sealy’s Wednesday close of $2.14. Sealy shares were trading above the offer price at $2.22 in pre-market trade on Thursday, indicating that some investors expect a higher offer.

Tempur-Pedic shares were up 8 percent at $28.98.

Tempur-Pedic said it had received consent from shareholders holding about 51 percent of Sealy, the long-time market leader. It said no other shareholder approvals are needed to complete the deal.

Private equity firm Kohlberg Kravis and Roberts & Co. owns about 44 percent of Sealy, a remnant of its $1.5 billion deal in 2004 to take the company private.

Earlier this year, Sealy’s second-largest shareholder, H Partners, launched an attack on KKR, accusing it of wiping out 90 percent of the mattress maker’s value, saddling it with debt, and milking it for fees.

Tempur-Pedic said it has secured $1.77 billion in financing from Bank of America for the deal and to pay down existing Sealy and Tempur-Pedic debt. Tempur-Pedic had long-term debt of $680 million as of June 30.

Merrill Lynch will act as lead arranger and bookrunning manager for the debt.

After the deal, Tempur-Pedic and Sealy will continue to operate independently and Sealy EO Larry Rogers will remain CEO of Sealy and report to Mark Sarvary, Tempur-Pedic’s CEO.

NY Times to sell interest in Indeed, record $100 million gain

NEW YORK, Tue Sep 25, 2012 – The New York Times Co will sell its remaining interest in jobs search website Indeed.com, which is being acquired by Japan’s executive search firm Recruit Co Ltd.

The company said it expects to record a related after-tax gain of about $100 million in the fourth quarter.

Indeed’s co-founder Paul Forster said on Monday that the company will be sold for an undisclosed amount after several months of direct negotiations.

NY Times and Union Square Ventures were the principle investors in Indeed, with Allen & Co owning a smaller stake.

Shares of New York Times, which publishes its namesake newspaper and the Boston Globe, were up nearly 3 percent at $9.86 in morning trade on the New York Stock Exchange.

NY Times, which used to be a sprawling media conglomerate with holdings in cable networks, magazines, newspapers and sports teams, has been shedding assets over the past few years to streamline operations and shore up cash reserves as advertising dollars dry up.

NY Times sold About.com for $300 million last month to Barry Diller’s IAC-owned Ask.com.

Treasury resists GM plan on government stake sale: WSJ

WASHINGTON, Mon Sep 17, 2012 – The Treasury Department is unwilling to sell the government’s stake in General Motors Co. because a sale now would mean huge investment losses, the Wall Street Journal reported on Monday, citing people close to the matter.

Earlier this year GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the carmaker, the newspaper said, citing unidentified people familiar with the situation.

Under that plan, Treasury would sell the remaining shares through a public stock offering, the Journal said.

But the Treasury, which holds a 26.5 percent stake in the automaker, is not interested in GM’s offer at the current price, and is not rushing to sell shares, the Journal said, citing people familiar with the matter.

At GM’s Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake, the paper said.

While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, the Journal said.

“The Treasury will make its own decisions about their stake in the company like any other owner,” a GM spokesman told the newspaper. “Our job is to produce great cars and solid profits.”

The Treasury has invested more than $50 billion in GM via the Troubled Asset Relief Program.

Neither General Motors nor the Treasury department could not be reached for comments immediately.

Chesapeake Energy to raise $6.9 billion from asset sales

OKLAHOMA CITY, Okla.,Wed Sep 12, 2012 – Chesapeake Energy Corp said it will sell most of its Permian Basin properties to Royal Dutch Shell Plc nd Chevron Corp. and a majority of its pipeline assets to raise about $6.9 billion in cash.

The company, which has been shedding assets to raise cash to meet an estimated $10 billion funding gap, said it would use the proceeds to repay $4 billion of term loans in the fourth quarter.

Chesapeake has been working to sell the Permian Basin assets since February. The company holds 1.5 million acres in the basin, spread across the western part of Texas and the southeastern part of New Mexico.

Chesapeake said on Wednesday it would sell its assets in the southern Delaware Basin portion of the Permian Basin to a unit of Shell. Its assets in the northern Delaware Basin portion would be sold to Chevron. The company said it would raise about $3.3 billion from sale of the Permian Basin assets.

Chesapeake said it would raise $3 billion from selling substantially its entire pipeline and related assets. This comes after the company said in June it would sell its pipeline assets to Global Infrastructure Partners for more than $4 billion.