Brazos Partners' CoMark leveraged buyout strategy and GTT generation transfer analysis

Brazos Partners: The CoMark LBO

What is Brazos' strategy? What differentiates it from that of other buyout funds?

The main aim of the company was to pursue transactions that could deploy between $100 and $500 million of equity. Brazos' strategy focuses on buying out of companies with the valuation of approximately between $25 and $250 million. This strategy builds on proven cash flow and effective management in the United States of America. The strategy focuses on Texas and Southwest thus differentiating it from other buyout funds. Other buyout funds have minimal emphasis on the region thus crucial to the efficiency of the transaction.

What is the GTT (Generation Transfer Transaction)?

Generation Transfer Transaction refers to tax-efficient structure or measure that avails liquidity to supplement continuity in operation control for the owner, in addition to flexible capital structure, to foster future growth and development. General Transfer Transaction aims at solving situation in family-owned businesses where the founder experiences much risk due to concentration of the family's net worth in the business.

Why would CoMark be a good candidate for a leveraged buyout? What do you think of this opportunity?

CoMark represents an organization with a fair price or reasonable cost, effective and efficient management, strong and solid cash flow, and a prospect in building modular structures. This makes it fall in the plans of the Brazos. CoMark also possesses the advantage by being a company of two owners or proprietors. This opportunity by CoMark presents effective and efficient advantage to Brazos to make investment thus conduct extensive transactions.

How did Brazos make itself comfortable with the transaction while other funds passed? What does the planned financial structure look like?

Brazos applies the use of General Transfer Transaction model to acquire the favorable situation within the procurement process. GTT would allow the organization to control slightly above the average of the common stock of the new company. This financial structure also ensures that mangers obtain liquidity for their holdings while in the possession of strong incentives of considerable equity ownership. The new cash (reinvestment) would evade taxation until liquidation of the shares. GTT also ensures that the new company would be under the watch of the family subject to strict conditions. In case of failure of the targets, then Brazos would take ownership of the firm by controlling its outstanding shares.

Why does CoMark's management need Brazos? Why do not they simply make a leveraged recap?

CoMark was experiencing uncompetitive situation thus minimal chance for maximizing the revenues of the company. The cofounders of the company were in their late 50s, and their sons and daughters did not want to take over the management of the organization. The third reason was to reinvent the view and investment thesis while obtaining external financial assistance. Since the beneficiaries of the cofounders of the company had minimal interest in managing the company, it was wise and rational not to go into make a leveraged recap.

What do you think of the $40 million price for CoMark? Value CoMark using multiples and the APV method

$40 million price for the new company reflects on the market value due to the presence of the debt or uncompetitive nature within the industry. Both multiples and APV methods project the value of the organization at approximately $40 million. This price offers appropriate opportunity for Brazos to make the intended profits thus ensures future growth of the organization according to the strategy.