Pet Food Manufacturer


  • Pet food component manufacturer
  • Business consists of 3 LLCs
  • 2 main owners in early 50’s
  • 3 locations with hundreds of employees
  • Very low basis
  • Large relative AAA attributable to main owners


  • Main owners want to retain control
  • Owners want partial liquidity to invest in other opportunities
  • Reward long-term employees
  • Access business value with lowest tax impact as possible


  • Payout legacy AAA with 5 year note
  • Form C Corporation holding company, roll 2 of the 3 LLCs into new HC
  • Sell 98% of HC stock to new HC ESOP(each owner retains 1%)
  • Borrow total of $26,700,000 from bank
    • $22,700,000 Senior Debt at floating rate
    • $4,000,000 Revolver at floating rate
  • Seller finance $35,000,000 as subordinated 20 yr. note payable at 4.5%(effective mezz. rate of 15%)
    • Warrants issued for NPV of difference in rates (actual vs owed) exercisable when debt is extinguished
    • Warrants will recapture value equal to approx. 40% of company value
  • Convert to S Corp immediately after sale of HC stock to ESOP


  • Combined, owners receive $50,000,000cash from sale to ESOP
    • Immediate cash from ESOP -$15,000,000
    • Notes totaling $35,000,000 plus interest over 20 years
  • Combined, owners receive AAA payouts totaling $9,500,000 over 5 years
  • Sellers receive additional $20,000,000 in cash when warrants are exercised
  • Estimated owners’ combined capital gains tax savings $10,000,000
  • Estimated corporate tax savings$39,000,000 over next 10 years
  • Employees share $50,000,000 plus growth of corporate value at no cost to them
  • Owners retain control and diversify assets