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CAPITAL FOR CLOSELY-HELD & RELATE-PARTY TRANSACTION
CRITICAL PATH FOR INDEPENDENT SPONSORS
OW N E R S H I PC AT E G O RY T R A N S AC T I O N O T H E R T E R M S
Overview
▪ An S2S acquires server-based intangible
assets with little value on the balance sheet
resulting in a capital gain to the seller.
▪ The S2S gain is offset by the sponsors
acquisition of the business.
▪ Leeward can be the sole capital provider
and may not require an equity investment
subject to specific deal terms.
▪ Cash consideration is generally within
traditional unitranche or mezzanine
leverage ratios.
▪ The seller takes back 25% or more of true
enterprise value through a seller note or
rolled equity, excluding earn-outs.
Specifics
Exceptions
S Y S T E M S / DATA
Critical Path
Questions
▪ Leeward can provide growth capital and/or
a debt recapitalization alongside its
acquisition capital provided 60% or less of
total proceeds are intended to stay on the
balance sheet.
▪ Leeward can provide low-cost non-dilutive
acquisition financing to equity sponsored
transactions as well.
▪ An S2S allows sponsors direct
equity at close and a larger
share of deal economics.
▪ Sponsors may receive board
fees and salary.
▪ Leeward has no direct equity
and no board seats allowing
sponsors greater autonomy.
▪ Mission-critical systems & data are
sever-based assets that are difficult, if
not nearly impossible, to replace.
▪ If these assets were lost, the company
would fail to serve its customers.
▪ These assets are common in asset-
light to asset-moderate businesses as
well as some asset-heavy businesses.
▪ Customized ERP
▪ Proprietary Technology
▪ CRM & Marketing Systems
▪ Supply Chain Systems
▪ Indispensable Data
▪ Other Mission-Critical Systems
▪ Owners must value the tax
shield of the S2S service
agreement payments.
▪ An S2S favors pass-through
tax entities.
▪ An S2S’ asset purchase is
inefficient for C-Corps due
to double taxation.
▪ Limited Liability Corp
▪ Partnership
▪ S-Corp
▪ Other pass-through entities
Does the independent
sponsor’s LOI have terms
similar to the following?
Does the transaction
meet the below
financial criteria?
Is the business
one of these
entity types?
Does the business have
mission-critical systems or
data?
▪ Business with license income like
software businesses are not a fit for
an S2S
▪ A business that looks like a software
business but has revenue based on
anything other than license income
like transactions, commissions, or
leads is a fit for an S2S.
▪ Trailing twelve-month EBITDA
of $5 million or greater
▪ Investments of $10 million or
greater
▪ U.S. based businesses
▪ Leeward may consider
businesses with EBITDA as low
as $2.5 million under select
circumstances.
▪ Businesses with recurring
revenue in excess of $10 million
may be a fit regardless of
profitability.
▪ Acquisition targets can be a
C-Corp if the transaction is
an asset purchase and the
acquirer is a pass-through
entity.
▪ A C-Corp may also be a fit
when alternative capital
sources are costly or dilutive.
CAPITAL FOR CLOSELY-HELD & RELATE-PARTY TRANSACTION
SALE-TO-SERVICE TRANSACTION MAP
C AT E G O RY C A N D I DAT E C R I T E R I A
Critical Path Items
Pass-through Tax Entity
(S-Corps, LLCs, Partnerships)
Mission-Critical Systems and/or Data
(Not Always Apparent)
Profitable & Performing
($5M+ EBITDA, 10%+ Margins,
$10M+ investment)
H I G HF I T L OW M O D E R AT E
Use of Proceeds
▪ Control sale transactions to third parties
▪ Sole use of proceeds is debt
recapitalization
▪ Growth (unless next best alternative is
heavily dilutive)
▪ Liquidity Events
▪ Shareholder & Management Buyouts
▪ Family Ownership Transitions
▪ Strategic M&A
▪ Independent Sponsor Acquisitions
▪ Financial sponsor follow-on acquisitions
▪ Financial sponsor dividend recapitalizations
(hold period three years or greater)
Balance Sheet ▪ Asset-heavy (with exceptions) ▪ Asset-moderate to Asset-light▪ Asset-heavy to assets-moderate
Alternative Cost of Capital
▪ Less than 6%
▪ Transaction objectives can be
accomplished using only senior debt
▪ Greater than 10%
▪ No or modest warrants and equity
▪ 6% to 10%
▪ No or modest warrants
Domiciled State Tax-Rate
▪ Texas (None)
▪ Florida (None)
▪ *All States Are Viable for an S2S*
▪ California (13%)
▪ New Jersey (8.97%)
▪ New York (8.82%)
▪ Other States with high tax rates
▪ Georgia (6%)
▪ Virginia (5.75%)
▪ Colorado (4.63%)
▪ Other States with moderate tax rates
This transaction map outlines Leeward’s investment criteria and highlights company and transaction
attributes that offer the best fit for an S2S.

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Critical Path for Independent Sponsors

  • 1. CAPITAL FOR CLOSELY-HELD & RELATE-PARTY TRANSACTION CRITICAL PATH FOR INDEPENDENT SPONSORS OW N E R S H I PC AT E G O RY T R A N S AC T I O N O T H E R T E R M S Overview ▪ An S2S acquires server-based intangible assets with little value on the balance sheet resulting in a capital gain to the seller. ▪ The S2S gain is offset by the sponsors acquisition of the business. ▪ Leeward can be the sole capital provider and may not require an equity investment subject to specific deal terms. ▪ Cash consideration is generally within traditional unitranche or mezzanine leverage ratios. ▪ The seller takes back 25% or more of true enterprise value through a seller note or rolled equity, excluding earn-outs. Specifics Exceptions S Y S T E M S / DATA Critical Path Questions ▪ Leeward can provide growth capital and/or a debt recapitalization alongside its acquisition capital provided 60% or less of total proceeds are intended to stay on the balance sheet. ▪ Leeward can provide low-cost non-dilutive acquisition financing to equity sponsored transactions as well. ▪ An S2S allows sponsors direct equity at close and a larger share of deal economics. ▪ Sponsors may receive board fees and salary. ▪ Leeward has no direct equity and no board seats allowing sponsors greater autonomy. ▪ Mission-critical systems & data are sever-based assets that are difficult, if not nearly impossible, to replace. ▪ If these assets were lost, the company would fail to serve its customers. ▪ These assets are common in asset- light to asset-moderate businesses as well as some asset-heavy businesses. ▪ Customized ERP ▪ Proprietary Technology ▪ CRM & Marketing Systems ▪ Supply Chain Systems ▪ Indispensable Data ▪ Other Mission-Critical Systems ▪ Owners must value the tax shield of the S2S service agreement payments. ▪ An S2S favors pass-through tax entities. ▪ An S2S’ asset purchase is inefficient for C-Corps due to double taxation. ▪ Limited Liability Corp ▪ Partnership ▪ S-Corp ▪ Other pass-through entities Does the independent sponsor’s LOI have terms similar to the following? Does the transaction meet the below financial criteria? Is the business one of these entity types? Does the business have mission-critical systems or data? ▪ Business with license income like software businesses are not a fit for an S2S ▪ A business that looks like a software business but has revenue based on anything other than license income like transactions, commissions, or leads is a fit for an S2S. ▪ Trailing twelve-month EBITDA of $5 million or greater ▪ Investments of $10 million or greater ▪ U.S. based businesses ▪ Leeward may consider businesses with EBITDA as low as $2.5 million under select circumstances. ▪ Businesses with recurring revenue in excess of $10 million may be a fit regardless of profitability. ▪ Acquisition targets can be a C-Corp if the transaction is an asset purchase and the acquirer is a pass-through entity. ▪ A C-Corp may also be a fit when alternative capital sources are costly or dilutive.
  • 2. CAPITAL FOR CLOSELY-HELD & RELATE-PARTY TRANSACTION SALE-TO-SERVICE TRANSACTION MAP C AT E G O RY C A N D I DAT E C R I T E R I A Critical Path Items Pass-through Tax Entity (S-Corps, LLCs, Partnerships) Mission-Critical Systems and/or Data (Not Always Apparent) Profitable & Performing ($5M+ EBITDA, 10%+ Margins, $10M+ investment) H I G HF I T L OW M O D E R AT E Use of Proceeds ▪ Control sale transactions to third parties ▪ Sole use of proceeds is debt recapitalization ▪ Growth (unless next best alternative is heavily dilutive) ▪ Liquidity Events ▪ Shareholder & Management Buyouts ▪ Family Ownership Transitions ▪ Strategic M&A ▪ Independent Sponsor Acquisitions ▪ Financial sponsor follow-on acquisitions ▪ Financial sponsor dividend recapitalizations (hold period three years or greater) Balance Sheet ▪ Asset-heavy (with exceptions) ▪ Asset-moderate to Asset-light▪ Asset-heavy to assets-moderate Alternative Cost of Capital ▪ Less than 6% ▪ Transaction objectives can be accomplished using only senior debt ▪ Greater than 10% ▪ No or modest warrants and equity ▪ 6% to 10% ▪ No or modest warrants Domiciled State Tax-Rate ▪ Texas (None) ▪ Florida (None) ▪ *All States Are Viable for an S2S* ▪ California (13%) ▪ New Jersey (8.97%) ▪ New York (8.82%) ▪ Other States with high tax rates ▪ Georgia (6%) ▪ Virginia (5.75%) ▪ Colorado (4.63%) ▪ Other States with moderate tax rates This transaction map outlines Leeward’s investment criteria and highlights company and transaction attributes that offer the best fit for an S2S.