The Food Partners

Due to ownership, management and liquidity issues as well as inner-generational equity transfers, The Food Partners’ (TFP) clients often face decisions regarding potential divestiture of divisions, assets or the entire business. TFP’s divestiture process is customized to best meet its clients' objectives, which, in turn, are typically complemented by the following goals, namely to:

Achieve maximum immediate cash price,
Obtain maximum value over time, which may involve participation in future growth and earnings,
Minimize transaction related taxes,
Minimize risk of prolonged disruption to the business and/or
Protect positions of management, employees, customers and/or communities.

TFP maximizes value in divestiture transactions by understanding the motivations of each potential buyer and communicating a consistent and compelling story, while maintaining alternatives to the buyers at hand. To minimize disruption to the business, TFP qualifies the interest of each potential buyer at every step and controls the flow of confidential information. In so doing, TFP provides an effective buffer to management and enhances confidentiality. Most of all, TFP maintains control of the process by treating each potential buyer impartially, moving them forward on parallel paths, providing full disclosure and coordinating the work of attorneys, auditors, accountants and tax specialists, as appropriate.

Timing
The Food Partners' divestiture process typically takes 18 to 24 weeks for completion.

Fee Schedule
Divestiture fees are based upon either a percentage of the consideration received or a flat rate.

Case Study

Background
The company is a seventy-year multi-generational retailer operating 40+ stores in the heart of Wal-Mart country. The privately held firm had more than 80 shareholders and was challenged by the competing liquidity needs of those shareholders and the capital expenditures required to continue to compete effectively. The company felt their only alternative was to sell the business to a larger, better capitalized company.

Results
After evaluating the company, completing a preliminary analysis of its value and identifying the likely buyers, TFP determined that an alternative open to the company was to complete a partial sale to a strategic buyer and to sell the rest of the company’s equity to its ESOP which already owned 8% of the company.

Ultimately the company developed an interesting structure where it created an LLC into which its supplier invested a substantial amount of equity and subordinated debt and also into which the company contributed substantially all of its assets and liabilities while the company’s ESOP purchased all of the outstanding shares of company stock that it did not already own.

This structure had several attractive attributes, including:

The company post transaction was a 100% ESOP that was able to elect subchapter S status, allowing the company to pass all of its income and the related tax liability through to the ESOP which is a tax-exempt entity.
The LLC structure enabled the company to receive its supplier’s equity and subordinated debt investment which was necessary to the total capital structure while retaining a subchapter S status.
The selling shareholders were able to elect 1042 roll-over treatment of their capital gains, allowing them to invest the proceeds from their stock sales into qualified securities and to defer the capital gains tax until the qualified security is sold or matured. For those shareholders that elected 1042 treatment, it was equivalent to a 20% premium over the sale price of their shares.