Situation
The five unrelated owners of an entertainment company wanted to sell their business for as much as possible and go their separate ways.
Result
Based on a 6x multiple of $30 million annual cash flow, the company was worth approximately $180 million. However, if the company were to sell its real estate to a REIT and agree to pay $15 million rent, the REIT would pay 10x rent, or $150 million, and leave the company with $15 million of EBITDA worth $90 million. This strategy resulted in $240 million of value instead of $180 million. The stock was sold to an ESOP, which was willing to own the company subject to the lease terms. Further, the favorable income tax-free ESOP structure enables rapid debt paydown.