8-K: B. Riley Financial Partners with Oaktree in Great American Group Businesses

B. Riley Financial has agreed to form a partnership with Oaktree Capital Management for its Great American Group businesses, receiving cash, preferred units, and common units in a new holding company.

Summary

• B. Riley Financial will contribute its Appraisal and Valuation Services, Retail, Wholesale & Industrial Solutions, and Real Estate businesses, collectively known as the Great American Group, into a newly formed holding company called Great American NewCo.
• Oaktree Capital Management will partner with B. Riley in this new venture.
• B. Riley will receive approximately $203 million in cash, Class B Preferred Units with an initial liquidation preference of about $183 million, and approximately 47% of the common units in Great American NewCo.
• Oaktree will acquire Class A Preferred Units with an initial liquidation preference of approximately $203 million and approximately 53% of the common units in exchange for approximately $203 million in cash.
• The transaction implies a total enterprise value for Great American NewCo of $386 million.
• The deal is expected to close in the fourth quarter of 2024, pending regulatory approvals and other closing conditions.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic partnership with Oaktree, the expected debt reduction, and the potential for future growth. The language used by management is optimistic and forward-looking.

Positives

• The partnership with Oaktree is expected to provide capital and operating expertise to support the growth of the Great American Group.
• B. Riley will achieve meaningful debt reduction while retaining significant equity upside in the business.
• The transaction allows B. Riley to reinvest in its core financial services businesses.
• Oaktree's involvement is expected to increase the future growth prospects of the Great American Group.
• The deal provides B. Riley with a strong partner in Oaktree, a leading asset manager.

Risks

• The transaction is subject to regulatory approvals and other customary closing conditions, which may not be met.
• There is a risk of potential litigation related to the transaction.
• The transaction may not be consummated in a timely manner or at all.
• The agreement could be terminated under certain circumstances.
• The company's future performance may differ materially from expectations due to various factors.

Future Outlook

The partnership is expected to enhance the growth prospects of the Great American Group and enable B. Riley to reduce debt and reinvest in its core businesses. The transaction is expected to close in the fourth quarter of 2024.

Management Comments

• Bryant Riley, Chairman and Co-Chief Executive Officer of B. Riley, stated he is pleased to partner with Oaktree and believes their expertise will complement the Great American Group's leading position.
• Bryant Riley also mentioned that this transaction is an important step in their plan to reduce debt and reinvest in core financial services.
• Nick Basso, Managing Director at Oaktree, said Great American offers an exciting investment opportunity and they are eager to provide capital and operating expertise.
• Thomas Casarella, Managing Director at Oaktree, stated they are thrilled to partner with B. Riley and Great American's leadership team.

Industry Context

This announcement reflects a trend of financial services firms seeking strategic partnerships to enhance their capabilities and capital structure. The deal aligns with the broader industry trend of alternative investment firms partnering with established financial platforms to expand their reach and diversify their portfolios.

Comparison to Industry Standards

• The transaction structure, involving a combination of cash, preferred equity, and common equity, is a common approach in private equity deals.
• The valuation of Great American NewCo at $386 million is within the range of similar asset disposition and advisory businesses.
• Oaktree's investment aligns with its strategy of investing in established businesses with growth potential.
• The partnership structure is similar to other joint ventures in the financial services sector, where established firms partner with capital providers to expand their operations.
• The use of a revolving credit facility is a standard practice for providing working capital to newly formed entities.

Stakeholder Impact

• Shareholders of B. Riley are expected to benefit from the debt reduction and the potential upside from the equity stake in Great American NewCo.
• Employees of the Great American Group are expected to benefit from the partnership with Oaktree and the potential for growth.
• Clients of the Great American Group are expected to benefit from the enhanced capabilities and resources of the new partnership.
• Creditors of B. Riley may benefit from the reduced debt load.

Next Steps

• The companies will seek required regulatory approvals.
• The transaction is expected to close in the fourth quarter of 2024.
• B. Riley will provide transition services to Great American NewCo for up to one year.
• Great American NewCo will establish a five-member board of directors.
• The parties will finalize the Amended and Restated Limited Liability Company Agreement.

Key Dates

Keywords

B. Riley Financial, Oaktree Capital Management, Great American Group, Partnership, Asset Disposition, Financial Advisory, Real Estate Advisory, Valuation Services, Debt Reduction, Alternative Investments