B. Riley Financial is taking a meaningful step to solve its ongoing financial struggles as it gives an alternative investments titan a significant stake in its sprawling enterprise.
On Monday morning, the struggling financial services behemoth confirmed it had signed an agreement with Oaktree Capital Management to establish a new partnership involving the Great American Group businesses.
The deal will see B. Riley transfer its interests in several divisions, including its appraisal and valuation services, retail, wholesale & industrial solutions, and real estate advisory, into a newly formed holding company, Great American Holdings.
As part of the agreement, Oaktree will acquire a significant stake in the holding company. B. Riley will receive approximately $203 million in cash upon closing, along with Class B preferred units and Class A common units making up roughly 47 percent of the new entity.
Meanwhile, Oaktree is set to acquire 53 percent of issued and outstanding Class A common units of the holding company, in addition to Class preferred units with an initial liquidation preference of $203 million.
All told, the final deal puts the Great American holding company's total enterprise value at $386 million, firmly in line with earlier reporting by the Wall Street Journal.
In a statement, B. Riley chairman and co-CEO Bryant Riley highlighted the benefits of the partnership.
"We believe Oaktree's scale and expertise in alternative investments and their strength as a capital provider, combined with the Great American Group's leading position as a provider of asset disposition, financial advisory, and real estate advisory services, will prove complementary as we join forces to deliver financial products and services to better serve our clients."
It's been a difficult year for B. Riley, which has been exploring a host of strategic alternatives as it continues to deal with the fallout from its association with Franchise Group, the failed buyout firm owned by Brian Kahn. Aside from the Oaktree deal, Riley offered to take the company private in August for $7 a share, which would have translated into a $210 million transaction.
In September, news broke of another potential deal with Stifel Financial, which would see more than 400 independent advisors and employees in B. Riley's join Stifel $26 billion AUM wealth business get absorbed into Stifel's independent wealth channel. The uncertainty has eroded confidence within the organization, with at least two top advisors running out the door in what could very well be the first pebbles of an oncoming avalanche of exits.
Commenting further on the Oaktree deal, Riley emphasized the positives for his company's balance sheet, noting the prospects of "meaningful debt reduction while retaining significant equity upside in the business."
The transaction, which has been approved by B. Riley’s board, is expected to close in the fourth quarter of 2024, subject to regulatory approval.
Oaktree’s managing director, Thomas Casarella, expressed optimism for the future: "We look forward to bringing our resources and relationships to support Great American's growth as an independent platform."
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