8-K: B. Riley and Oaktree Form Partnership, Launch Independent Great American Group

B. Riley Financial and Oaktree Capital Management have partnered to launch the Great American Group as an independent business, specializing in valuation, appraisal, asset disposition, and real estate services.

Summary

• B. Riley Financial and Oaktree Capital Management have formed a partnership to launch the Great American Group as an independent entity.
• The Great American Group encompasses B. Riley's Appraisal and Valuation Services, Retail, Wholesale & Industrial Solutions, and Real Estate businesses.
• Oaktree affiliates invested approximately $200 million in cash for a majority stake in the new entity, Great American Holdings, LLC.
• B. Riley retained a significant equity stake, including Class B Preferred Units with a $183 million liquidation preference and approximately 44.2% of the Class A Common Units.
• B. Riley expects to record a gain of approximately $235 million in its fourth quarter 2024 financial results from the transaction.
• The new entity will be governed by a four-member board, with Oaktree having majority control while B. Riley retains certain protective rights.
• The agreement includes provisions for future distributions, transfer restrictions, and potential drag-along and call rights for Oaktree.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the successful closing of the transaction, the expected gain for B. Riley, and the strategic partnership with Oaktree. The language used is optimistic about future growth and success.

Positives

• B. Riley has significantly de-levered its balance sheet through this transaction.
• B. Riley retains significant equity upside in a business with compelling growth prospects.
• The partnership with Oaktree provides the Great American Group with scale and expertise in alternative investments.
• B. Riley expects to record a substantial gain of approximately $235 million in the fourth quarter of 2024.

Risks

• The document mentions forward-looking statements are subject to risks and uncertainties that could affect future results.
• The document references the risk factors in B. Riley's SEC filings, which should be reviewed for a comprehensive understanding of potential risks.

Future Outlook

The Great American Group is positioned for future growth and success, leveraging Oaktree's expertise and B. Riley's retained equity upside.

Management Comments

• Bryant Riley stated, 'We are excited about this new partnership with Oaktree, which has the scale and expertise in alternative investments to power GA Groups next chapter of growth and success.'
• Bryant Riley also noted that the transaction provided B. Riley with the ability to meaningfully de-lever our balance sheet and retain significant equity upside in a business with compelling growth prospects.

Industry Context

This transaction reflects a trend of financial services companies partnering with alternative investment firms to enhance growth and leverage expertise in specific sectors. The move allows B. Riley to focus on its core operations while retaining a stake in a potentially high-growth business.

Comparison to Industry Standards

• The transaction structure, involving a combination of cash investment, preferred equity, and common equity, is a common approach in private equity deals.
• The retention of a significant minority stake by B. Riley allows them to benefit from the future growth of the Great American Group, while Oaktree gains control and operational oversight.
• The use of preferred units with liquidation preferences is a standard mechanism to provide downside protection to investors.
• The inclusion of drag-along and call rights is typical in private equity agreements, providing Oaktree with exit strategies.

Corporate Governance

Related Party Transactions

• The transaction involves a partnership between B. Riley and Oaktree, with Oaktree affiliates investing in a B. Riley subsidiary.

Stakeholder Impact

• Shareholders of B. Riley will benefit from the expected gain of $235 million.
• Employees of the Great American Group will transition to the new independent entity.
• Customers of the Great American Group will continue to receive services under the new structure.
• Oaktree will gain a controlling stake in a business with significant growth potential.

Next Steps

• The Great American Group will operate as an independent business.
• B. Riley will report a gain of approximately $235 million in its fourth quarter 2024 financial results.
• The parties will continue to operate under the terms of the Great American NewCo LLCA.

Key Dates

Keywords

Great American Group, B. Riley Financial, Oaktree Capital Management, valuation services, appraisal services, asset disposition, real estate services, partnership, equity investment, financial services, liquidation services