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.

Typical size

Senior debt: $10 million - $300 million
Subordinated debt: $10 million - $100 million

Investment focus

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

PARTNER STORY

Winmark

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.

Benefits

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.

Alternatives

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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Stock Buyback

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