One Leaves, the Other Stays: When New York Private Finance came into being five plus years ago, we little anticipated the extent to which our highly specialized type of personal debt financing would be used by clients to buy out partners. In fact over a third of the transactions we have financed to date have been just that: one partner has decided to withdraw from the business; while the other wishes to re-up by buying the retiring partner out.  As always, we enable the borrower to use his illiquid equity in the business as collateral for a loan, but in this situation, he is also able to use the equity he is acquiring from his partner as additional collateral.  In a typical example, the continuing partner issues a certain amount of senior debt at the corporate level to fund part of the purchase of the departing partner’s stock, while evaluating whether to deploy mezzanine corporate debt or a personal loan from New York Private Finance to fund the balance.

Less Intrusive Lending: Happily for us, once the borrower has completed his comparative diligence, he has chosen to go with us. The reasons vary, but in general our clients cite lower cost, the less intrusive nature of our relationship vis-à-vis operations and the lack of any potential role in corporate governance.  Moreover, we do not require an eventual liquidity event to effect repayment, looking either to cash flows over the life of the loan or refinancing at a later date.  Finally, our use of a “participating interest” structure reduces the near-term cash burden of the loan and aligns our long term interests with those of the borrower.  In a number of cases, the latter aspect of our loans has been the most compelling feature of all.

Historic Intergenerational Transfers: One subset of partner buy-outs involves the transition of company leadership from one generation to the next. The press has observed widely that we are witnessing the largest intergenerational transfer of wealth in human history, and that is as true of the middle market as any other. In fact, the middle market is the primary locus of most family owned and operated businesses, so loans to effect intergenerational transfer have a special resonance in the market which New York Private Finance primarily addresses.

Do you know of any individual or family who might wish to explore ways to buy out partners or other family members?  New York Private Finance would be happy to help.