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Structured Equity or Special Situations

Structured Equity or Special Situations

Author: Adam Gross, Managing Director at JEGI CLARITY

Many private equity funds that traditionally lead leveraged buy-out (LBO) transactions for majority control of companies are creating “Special Opportunity” or “Structured Capital” funds to provide middle-market companies with flexible financing solutions, offering founders and CEOs with an opportunity to raise capital quickly to solve financing needs. These investments are typically structured as minority investments, and the capital can be used by founders/CEOs to solve short-term financing needs, invest in growth initiatives, and/or invest in operations.

Many times, these financing solutions can address situational complexity, from companies seeking capital to pay down debt, to businesses experiencing difficulty securing capital from their usual sources. Furthermore, these solutions can aid founders/CEOs who are seeking to opportunistically invest to support growth in their businesses, without having to give up control of their companies.

One interesting solution for middle-market companies is “Structured Preferred Equity”, an innovative way for companies to raise capital without diluting their ownership stake as much as they would with traditional debt or equity financing. This can be especially beneficial for founders/CEOs who want to maintain control of their companies, while raising capital in a relatively short time – typically within four weeks. For investors, this type of equity investment can provide more robust protection than traditional common equity, which enables investors to move faster in providing the financing, given the lower risk profile.

Here are the general terms and types of structured preferred equity a founder/CEO should expect:

Interest – preferred equity offers the investor an interest payment typically paid as Paid-in-Kind (PIK) interest, which accrues over time and is paid at a later date; this enables the company to conserve cash and utilize that cash for operational investments and growth initiatives; current market rate is in the low double-digit percentage range

Liquidation Preference – preferred equity may provide downside protection to the investor by guaranteeing a certain level of return, before the common equity is paid; for example, a 1.25x liquidation preference guarantees the investor a 1.25x return on their investment before the common shareholders receive any payment

Participating Preferred – typically, this type of preferred equity provides downside protection via a liquidation preference, while also offering the investor the opportunity to participate in the common equity value of the company; as such, once the preferred equity investor receives its interest payments and guaranteed return, it then participates in the common equity waterfall, enabling it to partake in the company’s upside

Convertible Preferred – in this type of preferred equity, the investor chooses either the preferred value of the security or the converted value of the common shares; basically, the investor chooses between the greater of the two calculated values, providing the investor with downside protection, as the minimum value is the preferred value, while offering the investor the option to participate in the company’s upside via the common equity

A few things to consider, structured preferred equity can be more expensive than traditional debt or equity financing, as investors typically demand a higher rate of return for this type of investment.  Structured preferred equity can also limit the flexibility of the company, as the terms of the preferred stock may include certain restrictions on the company’s operations or decision-making.

Another important aspect to consider is that structured preferred equity is typically not for companies that are in very early stages of development.  It’s more suitable for companies that have a track record of generating revenue and profitability and are looking to expand/invest in growth.

In Conclusion  

Structured preferred equity can be a highly flexible, fast and effective way for companies to raise capital.  It’s important to understand the pros and cons before deciding, and experienced investment banking professionals will help you understand this financing option and opportunity better, can introduce an array of firms that offer this type of financing solution and will help companies and founders align with the best partner at the best terms. 

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Rich Kanefsky Promoted to Managing Director

Rich Kanefsky Promoted to Managing Director

New York, NY, January 12, 2023 – JEGI CLARITY, a pre-eminent M&A advisory firm for the global media, marketing, information and technology industries, headquartered in New York, NY and London, UK, is pleased to announce that Rich Kanefsky has been promoted to Managing Director. Rich joined the firm as an Associate in 2015. He advises clients on mergers, acquisitions, corporate divestitures and capital raises across the media, marketing services, information and technology sectors, having completed over 25 successful transactions on behalf of founder-owned, venture capital- and private equity-backed companies, and global corporations.

Prior to joining JEGI CLARITY, Rich worked at Deloitte Transactions and Business Analytics in the Corporate Finance and Business Valuation practices, where he advised clients on M&A and valuation within the Healthcare and Fintech sectors. Rich began his career at Creative Artists Agency (CAA) in the Film Finance and Sales Group.

Commenting on his promotion, Rich said, “I have been privileged to work alongside and learn from some of the best and most knowledgeable bankers across our core sectors, and I am grateful to all the clients who entrusted me to help advise them through their transactions. I look forward to building on the success of JEGI CLARITY by delivering excellence on behalf of our clients and continuing to develop the next generation of talent within our firm.”

Wilma Jordan, Founder & CEO, North America of JEGI CLARITY, noted, “Rich has very successfully climbed the ladder in his eight years at JEGI CLARITY. We have a long track record of promoting talented individuals to enable them to reach their career aspirations. We are confident that Rich will serve our clients to the utmost possible.”

Rich holds an MBA from Fordham University, and a BA in Economics and Film & Media Studies from the University of Rochester.

Power of 5: The New Paradigm for Insights

“Power of 5”
The New Paradigm for Insights

5 Leaders, 5 Questions, 5 Minutes

The New Paradigm for Insights

Introducing our latest Power of 5 series. We ask 5 industry leaders 5 questions in 5 minutes to gain insight on how they are succeeding in today’s market.

In this series we examine the research, insights, and measurement sector, how that sector has evolved over the last 18 to 24 months, and what that means for M&A.

Over 5 weeks we interviewed 5 selected executives from leading corporations. Topics of discussion included current challenges facing clients, learnings from the last two years, and M&A criteria going forward.

Key Takeaways

  • There is an increasing need to demonstrate impact beyond delivering insights and contribute more directly to the growth ambitions of clients.
  • Clients need a quicker and better understanding of the changing marketplace. Companies need to help clients understand, predict, and act on change.
  • It is important to have an M&A program that is embedded and aligned with your company’s current and future needs.
  • Given the broader macroeconomic environment, clients need data in real time to validate their decisions.

Speakers

Kristof De Wulf, Chief Executive Officer,

Barrie Brien, Group CEO,

Tugce Bulut, Founder & CEO,

Christoph Haschka, Group Director of M&A,

Matt Britton, Founder & CEO,

Full Interviews Below

Kristoff De Wulf speaks with San Datta
Tugce Bulut speaks with San Datta
Matt Britton speaks with Kevin Moore
Barrie Brien speaks with San Datta
Christoph Haschka speaks with Michael Hirsch

I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.

Bill Gates

Executive Leadership Dinner

Executive Leadership Dinner

Location: The Pierre, New York City
Partner: BDO  (www.bdo.com)

JEGI CLARITY held its fourth Executive Leadership Dinner of 2022 on November 30th at the Pierre in New York starting at 6PM with cocktails. These events are structured as roundtable discussions and provide a stimulating evening of great conversation and networking.

This Dinner was titled “Digital Advertising … Is There a Better Way” and the roundtable discussion was led by Brian Whipple, Chairman of Plus Company and Former CEO of Accenture Interactive (2010 – 2021), who shared his perspectives on the evolving advertising landscape.

The Dinner brought together approximately 35 senior executives from a mix of large global corporations and emerging companies.

Content & Commerce: A New M&A Battleground

Content & Commerce:
A New M&A Battleground

Key Highlights

Global e-commerce revenue is expected to reach$5.5 trillionin 2022, with20%of all global retail sales expected to take place online

Rapid growth in U.S. affiliate marketing spend to$9 billiondriving$70 billionin e-commerce sales

Publishers actively focusing on acquisitions to diversify beyond traditional ad & subscription revenues, deepen vertical reach and accelerate growth

Private Equity increasingly seeking to build exposure to the sector with a focus on building scaled platforms, organically and through aggressive buy and build strategies


Content is Driving Commerce

Content

Publishers produce content around transactional topics, but do not capture the purchase

Commerce

Retailers power transactions, but have limited insight into consumer intent and behavior

Large and Growing Addressable Market

Addressable Market Overview
  • E-commerce continues to take a larger share of overall sales
  • Performance based digital ad spending has been the leading digital ad model representing 67% of spending in 2021
    • The retail sector comprises 50% of total performance marketing spend but accounts for 75% of total revenue generated by advertisers
  • Performance based marketing reigns supreme as it enables retailers to pay the publishers when a specific action is completed, making it easier to measure, track and attribute success delivering tangible ROI and reducing risk for the retailer
  • 16% of all online orders are generated through the affiliate channel

Right now, commerce is the hot, hot thing

Neil Vogel, CEO, Dotdash Meredith

Select Participants

Executive Leadership Dinner

Executive Leadership Dinner

Location: The Pierre, New York City
Partner: BDO  (www.bdo.com)

JEGI CLARITY held its third Executive Leadership Dinner of 2022 on September 19th at the Pierre in New York starting at 6PM with cocktails. These events are structured as roundtable discussions and provide a stimulating evening of great conversation and networking.

This Dinner was focused on the “The Resilience of Face-to-Face Meetings” and the roundtable discussion was led by Gary Shapiro, President & CEO of Consumer Technology Association, who shared his perspectives on what drove success in the sector and discussed the criticality of bringing together communities to facilitate commerce and drive innovation.

The Dinner brought together approximately 35 senior executives from a mix of large global corporations and emerging companies.

Executive Leadership Dinner

Executive Leadership Dinner

Location: The Pierre, New York City
Partner: BDO  (www.bdo.com)

JEGI CLARITY held its second Executive Leadership Dinner of 2022 on August 10th at the Pierre in New York starting at 6PM with cocktails. These events are structured as roundtable discussions and provide a stimulating evening of great conversation and networking.

This Dinner was focused on “How Software is Transforming Information Services” and the roundtable discussion was led by Mike Walsh, Chief Executive Officer of LexisNexis, who shared his perspectives on how software is increasing productivity, improving outcomes, and better assisting the clients of information services companies.

The Dinner brought together approximately 35 senior executives from a mix of large global corporations and emerging companies.