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Stock Buyback

Issuing debt to repurchase shares.
A stock buyback, or share repurchase, occurs when an issuing company purchases its own stock on the open market or from shareholders directly.  

You may have many different reasons for executing a stock buyback, including consolidating ownership or restructuring your company’s capital structure.

Although most stock buybacks are financed with a company’s internal funds, you may also partner with a financial institution to fund a share repurchase program. Partnering with a financial institution can allow you to provide liquidity to selling shareholders by borrowing money at a lower cost than the company’s cost of capital. This borrowed capital replaces the equity value provided to selling shareholders.
Decorative illustration
Typical size
  • Senior debt: $10 million - $300 million
  • Subordinated debt: $15 million - $150 million
Typical uses
  • Middle-market companies with attractive growth prospects and positive cashflow
  • Incumbent management teams and active ownership with an economic stake in the company’s success
  • Minimum EBITDA of $8 million
  • Generalist sector approach
Structural characteristics
  • Senior debt, alongside junior capital, for a seamless, one-stop solution with a single, relationship-oriented capital provider
  • Typical maturities: 3 – 25+ years
  • Flexible payment structures, including amortizing or bullet, and fixed- or floating-rate
Issuer benefits
  • Capacity to fund across your capital structure; a one-stop shop with senior debt, mezzanine or subordinated debt, and preferred equity
  • Supportive, patient, relationship-oriented partner
  • Deep pockets to provide follow-on capital to fund your future growth
  • Streamlined due diligence and execution process, ensuring speed and certainty of close
  • Industry agnostic, with deep experience across industries
Franchisor receives share repurchase financing
Headquartered in Minneapolis, MN,  Winmark Corporation creates, supports, and finances businesses. It specializes in developing franchises for retail stores that buy, sell, and trade new and used merchandise. In addition, Winmark operates a leasing business focused on technology equipment.

A few years ago, Winmark sought financing for a tender offer of approximately 17.5% of its shares outstanding. This transaction delivered value to shareholders in an efficient manner and provided shareholders with an opportunity to obtain liquidity without potential disruption to the share price and the usual transaction costs associated with open market sales.

Winmark approached us when they were planning for the tender offer. We ultimately provided $25.0 million of senior secured notes to facilitate the transaction.

Two years later, Winmark launched another tender offer. Due to our existing relationship with them and their satisfaction with the first transaction, Winmark again contacted us to help finance the repurchase. We worked with them to provide $12.5 million of senior secured notes for this share repurchase.

Winmark was attracted to our ability to provide fixed-rate notes at a flexible amortization structure. Additionally, they valued our relationship-focused approach and our reputation of executing transactions.
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“Built up over 75 years, Prudential Private Capital’s deep knowledge of industries, markets, and cycles gives us the perspective and confidence to stay firm during periods of volatility, and enables us to have an unwavering commitment to our partners.”

One incentive for a stock buyback program is to repurchase shares that have fallen out of the hands of the majority owners. For instance, your central leadership team may want to gain (or regain) control of their business, whether from less active shareholders or exiting owners. By repurchasing shares, you are reducing your outstanding shares and the number of people you have to answer to. This, in turn, also increases earnings per share.

For selling shareholders, a stock buyback is an efficient method of obtaining liquidity as selling shareholders don’t have to face the transaction costs and hassles associated with open market sales. Proceeds from selling shares also creates a source of diversification for the selling shareholder.
Stock buybacks are an alternative to dividends; both are ways you can distribute cash to shareholders. By repurchasing shares, you are distributing cash to existing shareholders for a fraction of the company’s outstanding equity. With dividends, a portion of your company’s earnings are paid to shareholders on a set schedule, however; you can also issue special dividends. Although both are methods of distributing cash to shareholders, only stock buybacks transfer equity portions.
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