Earnout Issue 5 - Online Version

Matt Harnett Founding Partner Tecum Capital Partners

Maximizing the Lifecycle of Your Investment

Chandoha

Justin Benshoof

By Paul Marino, Jonathan Bernstein, Seth Lebowitz & Robert Cromwell

Tom Bradbury

Yehuda Braunstein & Jacob Shiffer

Travis Loomis

ABOUT SADIS

The firm maintains a diverse, business-oriented practice focused on investment funds, litigation, corporate, real estate, regulatory and compliance, tax and ERISA.

Drawing on the experience and depth of our lawyers in these distinct areas, we can leverage each lawyer’s industry-specific knowledge to help our clients succeed. This collaborative approach brings to the table a collective insight that contributes to sensible, efficient resolutions, and allows us to remain attentive to the cost and time sensitivities that may be involved.

Sadis’s clients include domestic and international entities, financial institutions, hedge funds, private equity funds, venture capital funds, buyout funds, commodity pools, and numerous businesses operating in various industries around

world.

BLAME IT ON THE RAIN

BY PAUL MARINO SADIS & GOLDBERG

There have been many surprises in my life

(to name a few):(i) learning that Santa Claus was really a guy from Harlem who drove a 1974 Vega and wore a satin Starter Yankees jacket (that would be my dad); (ii) Sgt. Slaughter was not really a sergeant (when he was young he actually protested the US Military)¹ and Iron Sheik was not a sheik at all (although, he was from Iran)² ; and (iii) the lyrics are not “no Dukes of Hazard in the classroom” but in fact, “no dark sarcasm in the classroom”; however, what was not a surprise was learning Milli Vanilli did not sing any of their songs.³

For those that do not remember, Milli Vanilli were a pop duo rising to fame in the late 1980s with such big hits as “Blame it on the Rain” (let’s face it, who doesn’t) and “Girl You Know It’s True” (a better title would have been “Girl I Didn’t Sing or Write This Song”—concededly not as catchy).⁴

Where am I going with this…well, the lack of M&A volume and activity in the middle market is blamed on tariffs and uncertainty…and maybe the rain; however, like Milli Vanilli, that is mostly an illusion (in defense of Milli Vanilli: they could dance—so

they had that going for them; which is nice).

The grand illusion (not the Styx song) is sellers in the private market—especially in venture capital and private equity—are clinging to 2021-valuations like Milli Vanilli clung to its platinum records and Grammys. They insist “Girl You Know It’s True” when claiming their company is still worth 30x revenue in a world that has fundamentally repriced risk (and sales multiples). And buyers? They are not dancing to the same tune. They’ve heard the tape skip and are now asking hard questions.⁵

The result of the foregoing is a calcified gap in the bid-ask spread (bid-ask spread: the difference between the bid price [the sellers valuation] and ask price [the price a buyers is willing to spend]) is a lot of deal stagnation. And until that narrows, deal volume will remain low; with muted volume, and little to no liquidity. All of this means there is no urgency to transact and without urgency (alacrity as my high school basketball coach would say), there is no sense that if I don’t close this someone else will, and when a deal has no shot-clock they tend to drag. And as the old axiom goes, time kills all deals (more on this below).

Now, before anyone in the manufacturing, industrial and/or construction business sends me hate-mail, tariffs have impacted and still are impacting many businesses (small and large); but this is not the overarching reason why M&A in middle and lower middle market has lagged. Tariffs and uncertainty occurred in April while M&A deal volume has been ebbing for the last 18 months (for all of those keeping score at home—that is the beginning of the second quarter in 2024). Further to that point, according to a report from Mergermarket, for the

first quarter in 2025 the US recorded its lowest transaction count since the 2009 GFC.⁶

While there were a number of transactions closing in Q1 2025, including Alphabet, Inc.’s purchase of Wiz, for $32 billion, there were more LOIs collapsing than deals closing.⁷ Nonetheless, macro levers— while impactful in public markets and global trade— have less explanatory power in the realm of private capital. Why? Because private markets are less liquid, less price-transparent, and more sentimentdriven. They operate not on moment-by-moment trading like the S&P 500, but on negotiated deals that rely heavily on mutual confidence. If either party—buyer or seller—believes they are being duped (or that the other side is still lip-syncing 2021 valuations), the deal doesn’t happen.

Irrespective of any exogenous forces, volume has been down for two years and deals aren’t being done and/or are slow walked. I believe that this is a result of the continuing battle between buyer and seller as it centers on the narrowing of the bid-ask spread. You’ll notice that I’m not blaming it on tariff or on economic uncertainty and that’s because business will adjust to higher transactional costs and downturns but it is impossible to make people believe their company isn’t worth that much.

For example, as it relates to higher transactional costs, here is a real-world comparison: NYC politicians have done everything possible to drive business out of NYC but businesses have adjusted (concededly some companies have left NYC, but most have not and many have expanded their footprint⁸). Accordingly, businesses adjust to the environment; even one that is hostile towards business.

In a business environment—really, in any environment—emotional and illogical thinking are difficult to adjust to and/or combat (same with uncertainty). To draw an analogy, it is said to a business owner a company is like their child. If we accept that analogy, then a comparison most people can relate to is the “Little League dad.”

Regardless of the odds—or how illogical the belief may be—many Little League parents believe (or at least hope) their child is destined for the Major Leagues, even if their Little Leaguer hasn’t had a hit all season and can’t catch anything but a cold.⁹

In business, the company has been searching for a bid, alas, no reciprocal offer received.

GIRL, YOU KNOW IT’S TRUE… I LOVE YOU

As of 12/2024, there was approximately $2.4 trillion in private equity dry powder. Prognosticators expected that figure to decline to $1.6 trillion—a massive drawdown in a single year. I’m not a mathematician, but that implies an extraordinary number of deals (or a few monolithic deals) in a 12-month period. And while that level of capital deployment is welcome (it’s worth noting that deal activity was virtually non-existent in Q1) hitting that $800 billion bogey would require a record-breaking pace in the remaining quarters.

Moreover, while the mountain of dry powder creates pressure to deploy, there’s arguably even more pressure from limited partners to see capital returned.

bought at the height of valuations) start accepting that their companies are valued fairly—or at least not as highly as they once hoped. That realization is the catalyst moment (SPOILER ALERT: kind of like Fight Club when the narrator (no name given) realizes that he is in fact, Tyler Durden). From there, buyers will start deploying capital, sponsorbacked sellers will begin returning capital to LPs, and LPs will in turn start redeploying. The cycle restarts, and urgency returns.

Just like Milli Vanilli couldn’t maintain their illusion forever, sellers can’t keep chasing bids that sustain pre-downturn valuations indefinitely. At some point, reality sets in—and I believe that is when the market moves (and move it will with $2.4 trillion in dry powder on the sidelines).

THE STORY OF THE GREAT GOLDEN

The other day my middle son graduated from HS and with his graduation so goes a number of young men that I coached in football, basketball and baseball. It reminded me of how quickly time flies, how much fun it was to coach these young men and my hope that I taught these kids a few things about sports and life.

One thing I used to ask the kids was if they knew the difference between thinking and believing. For example, do you think you can play great today or do you believe you can? And usually those who believe they could play the best to their abilities were the ones who practiced and played the hardest.

Returning to the Little League analogy: the bid/ ask spread will begin to tighten once non-sponsorbacked sellers (and sponsor backed sellers who

When they invariably said, no; I would tell the story of the GREAT GOLDEN.

The Great Golden was an orphan born in the late 19th century in northern France. At an early age, he was orphaned and had to fend for himself on the streets of his small town; and one of his greatest joys was when the circus came to town.

He earned his name because of the feats he accomplished as a performer and of course because his long golden mane of hair (think Fabio).

THE JOURNEY

One year in anticipation for the circus’ arrival, he practiced walking on an imaginary tightrope in hopes to join the ranks of his heroes. Finally the big day was here; the big top was set up and the Great Golden snuck in and began to practice his high-act on his imaginary tightrope. Luckily, for the Great Golden a performer took a liking to him and invited him to join the high-wire troupe. For years the Great Golden would practice and hone his craft until one day he became the greatest trapeze artist in the world. The Great Golden performed for kings and queens, royalty and the worlds dignitaries; and he was universally loved. However, he felt that something was missing and he needed to do something even greater. He thought long and hard and decided that a feat unparalleled in daring and danger would cement his place as the greatest showman in the world.

THE BIG IDEA

Golden decided that he would walk across Niagara Falls on a tightrope. After many months of planning the day of the big event arrived. As expected every newspaper and tens of thousands of people where there to see the Great Golden cross the vast water expanse.

WALKING THE WALK

The Great Golden crossed the vast expanse with a small wheelbarrow and little more than midway through he looked as if he started to stumble, the wire started to wobble and the crowd held its breath. Just as he looked like he was about to fall, using the wheelbarrows handles he flipped over and thereafter picked up the wheelbarrow and summersaulted safely to terra firma. The crowd erupted, lightbulbs flashed and the Great Golden cemented his place in history as one of the greatest performers ever.

THINK OR BELIEVE

When the crowds started to disburse and the reporters left to write their stories, a reporter from one of the nation’s foremost papers approached Golden and asked him how he could accomplish such a feat? Golden simply said, because I believe. The reporter than asked if Golden could do it again? Golden, with a wry smile, asked do you believe I can? The reporter said I think you can cross it again. Golden then asked again, do you believe I can? The reporter asked what is the difference? Golden said, “get in the wheelbarrow and I’ll show you.”

The reporter got in the wheelbarrow and Golden approached the tightrope with the reporter in the wheelbarrow. The reporter at this point was terrified that Golden would cross the expanse with him in the wheelbarrow—and asked to get out. At that moment, Golden stopped and let the reporter out; he then said, I believed I could cross and I did. You thought I could but did not believe and you didn’t cross.

No one accomplishes great deeds, fulfills dreams, gets to the other side, without believing.

THE 2025 EARNOUT CREDIT SYMPOSIUM

September 11, 2025 | Chicago, IL

We’re excited to announce the inaugural Earnout Credit Symposium, taking place this fall in Chicago. This event is designed to bring together a dynamic mix of private equity sponsors, credit providers, and institutional investors for a day of actionable insights, candid dialogue, and high-impact networking.

In today’s market, credit is more than capital—it’s strategy. The Symposium will focus on what credit funds look for in a borrower, how founders should evaluate their credit options, and how real deals get done. Through knowledge-share sessions, founder roundtables, and expert panels, we’ll explore the

1 https://en.wikipedia.org/wiki/Sgt._Slaughter

2 https://en.wikipedia.org/wiki/The_Iron_Sheik

3 https://en.wikipedia.org/wiki/Milli_Vanilli

evolving role of private credit in growth-stage and sponsor-backed transactions.

Whether you’re deploying, borrowing, or advising—this is where the capital stack meets the conversation.

SEPTEMBER 11, 2025.

LOCATION: CHICAGO, IL MORE DETAILS AND REGISTRATION TO FOLLOW.

4 I must admit that I did like Milli Vanilli songs and along with Bobby Brown (My Prerogative), Phil Collins, Paula Abdul, Poison, Motely Crue and the Fine Young Cannibals—owned the airways (they actually had four songs in top 30—only topped by Bobby Brown who had 5) (https://en.wikipedia.org/wiki/Billboard_Year-End_Hot_100_singles_of_1989).

5 The tape skip incident: https://www.youtube.com/watch?v=VYz_Sh4sPCU&t=58s

6 https://info.mergermarket.com/

7 Corporate buyers (a/k/a strategic buyers) make deals when they have a necessity because they have an infinite (or at least until shareholders put their feet to the fire) timeline.

8 see, e.g., JP Morgan’s new world headquarters

9 The odds that a little leaguer will play in the major leagues is 0.0296%.

PAUL MARINO Partner

Sadis & Goldberg pmarino@sadis.com

Paul Marino is a partner in the Financial Services and Corporate Groups. Paul focuses his practice in matters concerning financial services, corporate law and corporate finance. Paul provides counsel in the areas of private equity funds and mergers and acquisitions for private equity firms and public and private companies and private equity fund and hedge fund formation.

Executive Guide to Do’s and Don’ts in an M&A Shareholder Vote

BY W. SAM CHANDOHA ALLIANCE ADVISORS

M&A transactions are arguably the most consequential events companies can take on– for buyers, for sellers, and for the c-suites in the middle. That is obvious enough financially, with 2024 seeing¹ $3.5 trillion worth of merger and acquisition deals worldwide. Yet if a corporate-friendly White House means these figures could soon soar even higher, successful M&As require careful forward planning.

From understanding shareholders to targeting the investors that truly matter, executives must be proactive in the run up to these all-important, corporate reforming proxy votes. This is particularly true when investor opposition and public scorn can

stymie deals before they are consummated. Deals face increased pressure when shareholders feel the transaction fails to offer sufficient value.

A NEW ADMINISTRATION COULD BRING OPPORTUNITY

President Trump is anything but predictable – but there are reasons to think that his tenure could be a boom for M&A activity. The numbers are telling: in January 2025, 58% of American CEOs said² they hoped to engage in M&A this year, a 16% jump from September 2024. That is partly a reflection of the president’s broad ideological agenda, with deregulation, tax cuts and a more sympathetic merger review process all high on his

administration’s priority list.

To ensure executives appreciate the risks and opportunities of M&A shareholder votes, Alliance Advisors has developed a list Do’s and Don’ts, explaining how partnering with industry experts can help a deal go smoothly.

DON’T ASSUME YOU HAVE THE VOTE OR BE PASSIVE. FOR A SHAREHOLDER VOTE TO SUCCEED EXECUTIVES MUST KNOW THEIR SHAREHOLDER BASE

Apart from grasping the broad M&A landscape, deals can only succeed if companies develop a detailed picture of their shareholders. The specifics here will necessarily change after a deal is announced: a 2019 study³ found that hedge fund ownership rose by 7% in takeover targets, while mutual fund ownership dropped by 3%. Arbitrage is another consideration here too.

Careful stock surveillance or Ownership Intelligence⁴ is therefore important, because it offers an early indication as to how a deal is being met by the marketplace and investors. Ownership Intelligence is market surveillance that identifies and tracks the true institutional shareholders holding share positions and hiding behind custodians in a company’s stock.

By leveraging⁵ accurate and cutting-edge ownership intelligence databases, executives can learn who is buying and selling their shares. This intelligence greatly helps the solicitation period to be utilized effectively by targeting record date shareholders

with suitable messaging and not wasting time on investors who already sold their stock. More than that, comparing investor makeups pre- and postvotes allows executives to grasp how a deal was received, vital for dealing with any later discontent.

DON’T ASSUME ALL INVESTORS SUPPORT THE DEAL-SOLICITATION STRATEGIES MATTER

Even with a premium offer, not all investors will automatically back the transaction. Effective solicitation requires distinguishing between retail investors and institutional shareholders:

• Retail investors prefer clear, simple messaging that highlights direct financial benefits

• Institutional investors focus on long-term strategy, economies of scale, and margin improvements

Tailored messaging from CEO’s and investor perception studies helps ensure that companies align communication strategies with shareholder expectations.

DON’T FORGET ABOUT THE SELL-SIDE ANALYSTS– THEY CAN BE A POWERFUL ALLY IN ARTICULATING THE DEAL TERMS

Too often, companies overlook the role of sell-side analysts during an M&A transaction. But these individuals are regularly in front of your investors, and when properly briefed, they can be invaluable in helping shape market perception. If analysts

misunderstand or misinterpret the transaction, that misunderstanding can trickle into the shareholder base – especially for institutional investors who lean on analyst notes for quick takes.

Spend time ensuring the sell-side understands the transaction rationale, synergies, and value creation story. Consider holding an analyst call separate from your general investor communications to walk through the specifics of the deal. Provide clean, clear materials that break down pro forma financials, deal mechanics, and strategic rationale. If you’re not proactive in this area, you run the risk of leaving the narrative to be interpreted – or misinterpreted – by others. And once a negative view takes hold in the market, it’s hard to unwind.

DON’T BELIEVE YOUR SHAREHOLDER BASE HAS REMAINED STATIC. PAY ATTENTION TO SHAREHOLDER BASE SHIFTS -STOCK LOAN ANALYSIS IS CRITICAL

Once a deal is announced the makeup of shareholder base will change radically and rapidly. Therefore, very company that announces an M&A transaction, especially stock for stock deals or deals where there is significant arbitrage, must conduct a stock loan analysis. Stock loan analysis identifies the top institutions lending out shares to short sellers and helps you assess how this impacts the votable share positions.

This analysis helps ensure accurate understanding of voting dynamics and highlights any potential reductions in voting power caused by this practice. Why is this important? Because a large institution

like Vanguard or Blackrock might report a significant stake in your company’s stock. However, since they both actively engage in securities lending, a portion of those shares could be out on loan and are not eligible to vote. This effectively reduces the voting power of that institution on its reported record date position.

This can negatively affect a proxy solicitation campaign, as the anticipated number of votes may be significantly reduced, requiring efforts to secure additional votes from other investors.

Companies that fail to do this early in the transaction may find themselves wondering where certain institutional votes are at the last minute when less votes have appeared from record date positions. By this time, it might be too late to scramble to replace those lost votes.

DO TAKE A PROACTIVE APPROACH — THIS IS NOT A ROUTINE SHAREHOLDER MEETING

Just the threat of an activist investor seeking more is enough to know that companies must communicate with ALL investors, regardless of the premium involved. Activist investors are a constant threat to corporate plans, and nowhere is this clearer than M&A. The statistics are stark: M&A demands appeared⁶ in over half of H2 2024 campaigns.

M&A votes demand an all-hands-on-deck approach. Activist investors are a constant threat, and in H2 2024, over half of all activist campaigns included M&A demands.⁷ Public opposition can range from

critical statements to full-scale proxy fights, as seen when Brookfield’s $10.6 billion takeover bid for Australia’s largest power retailer was rejected in 2023 due to activist pressure.

Engage proactively with all investors—activists often leverage undecided votes to disrupt deals. Ensure proxy solicitation and investor relations teams are aligned well before the record date working together on coordinated shareholder outreach.

In all M&A transactions a company should have their regular proxy solicitor and IR firm on board. Don’t switch up your team, now is not the time to be holding the hand of a new firm.

DO INCLUDE RETAIL SHAREHOLDERS IN YOUR STRATEGY — THEY CAN MAKE OR BREAK THE VOTE

Retail shareholders specifically registered and

NOBO shareholders can be the difference between a successful vote and failure. More times than not, companies facing tough votes have relied on the retail shareholders to push the vote over the needed threshold.

All companies are different, but almost all have some component of retail shareholders that can be easily solicited. As a rule, once solicited, retail shareholders vote for management at ratio that is well worth the money spent. Retail Outreach⁸ campaigns take time that’s why its critical to plan upfront to include them in the overall strategy.

CONCLUSION

M&A shareholder votes should not fail but they do and if you’re a c-suite executive you certainly don’t want it to happen to your deal. By adopting a holistic⁹ strategy – one dovetailing best-in-class ownership intelligence, end to end shareholder engagement with focused investor relations10 –companies can ensure M&A votes pass without problems.

1 https://www.consultancy.eu/news/11063/global-ma-deal-value-on-track-to-reach-35-trillion-in-2024

2 https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/insights/mergers-acquisitions/documents/ey-us-february-

3 https://www.nber.org/system/files/working_papers/w25814/w25814.pdf

4 https://allianceadvisors.com/the-importance-of-institutional-ownership-intelligence-in-ma-transactions/

5 https://allianceadvisors.com/institutional-shareholder-intelligence/

6 https://www.ib.barclays/our-insights/shareholder-activism-surged-2024.html

7 https://www.ib.barclays/our-insights/shareholder-activism-surged-2024.html

8 https://allianceadvisors.com/retail-outreach/

9 https://allianceadvisors.com/

10 https://allianceadvisorsir.com/

W. SAM CHANDOHA Chief Marketing Officer Alliance Advisors

W. Sam Chandoha is responsible for redefining and maintaining Alliance Advisor’s corporate and social media presence. With decades of entrepreneurial and direct industry experience Sam is uniquely poised to provide strategic advice on business development, acquisitions and global expansion.

Independent Sponsor Capital

Valuations and Discipline

BY DREW BRANTLEY FRISCH CAPITAL

Today we are seeing an issue where large LPs want to see exits from their GPs, especially in the middle market, before investing in their next fund. However, GPs are often struggling to exit at a valuation that will lead to the returns they underwrote the deal to. Valuations, in many industries, have been slowly coming down over the last 18 months. Many sellers are having to adjust to the reality that this is a different market to sell a company in than 2021 or early 2022. In short, it’s hard to sell a company today and get the returns you underwrote the deal to, especially if you paid too much for a company 5 years ago!

Some of you are thinking, “Well I do deals in the lower middle market, so that doesn’t affect me”. While most of the deals we work on (helping Independent Sponsors raise equity and debt) are in the lower middle market, the middle market itself is a core part of the thesis and exit strategy, and ultimately impacts the lower middle market. If the middle market cannot exit their existing portfolio, and cannot raise new funds, it means less exit options for lower middle market companies in the near term.

A few years ago, I was speaking on a panel at the Earnouts Independent Sponsor Symposium hosted in New York City with Paul Marino at Sadis and Goldberg LLP and a woman from a large middle market private equity firm. The person from the private equity firm said they had made over 100 investments to date, and they recently did an analysis of all their companies looking at the investments that were successful and the investments that were not successful. To summarize, basically any operational or performance issue could be overcome with time, money, and resources. The one thing they could not overcome was paying too much for a company at the start. As a result, in their latest fund they had a strong shift to focus on the entry valuation of the companies they acquired.

For years, we at Frisch Capital, have been telling Independent Sponsors that they need to be “valuation conscious”. This is very different than being a value buyer that might be perceived as scraping the bottom of the barrel and trying to pay $0.10 on the dollar for a company. Valuation conscious means that you are aware that regardless

of who your equity investors are (institutional equity with a committed fund, family office or private capital), your economics are being layered on top of someone else’s economics or their returns they are underwriting the deal to.

For example, if a family office or institutional investor would buy a company at 8x EBITDA themselves, it doesn’t mean they will buy that same company with an Independent Sponsor at 8x EBITDA. To do the same deal with Independent Sponsor they might want to see the valuation closer to 6.5x EBITDA. This is simply an illustrative example and certainly not something to get hung up on the exact numbers, but it is the concept that I’m trying to illustrate.

Having discipline around valuation can be hard for Independent Sponsors that are competing in banked or brokered processes that are efficient and well run, when they are being told by the sell side advisor that they need to bid higher to win the deal. Keep in mind, a sell side advisors’ job is to get the best valuation for their client, and get the deal done as fast as possible with the least amount of headache and hassle. So, their goal and objectives are often counter to yours.

You might be thinking, “Well this is great and all Drew, but how do I compete when I feel like the deals are being bid up and out of my disciplined price range?”.

Great question! Here are a few things to consider and remember as you are finding your next platform:

1. Don’t fall in love with a specific deal, fall in love with a thesis.

I have heard many stories over the years where someone does a bad deal (they pay to much or bought the wrong company) and they end up spending way more time than they thought or should on the investment, and they often don’t end up with anywhere near the terms they underwrote the deal to. If things are not in the valuation range, or operational parameters that you are seeking, don’t be afraid to walk away. Keep in mind if you do 8 deals as an Independent Sponsor, is it worth having one of those drag down your overall returns? Be careful, often the main reason is you paid too much!

2. Just because you don’t win the deal, doesn’t mean you won’t close the deal.

How many times have you or someone else seen a company that is bid up in a sell side process, and then the group that wins the deal walks away after 30-90 days of due diligence, only for the deal to come back around. I don’t know the exact number, but a lot of our deals are done at good valuations with Independent Sponsors that were not the initial winner of the process, but the deal fell apart, they were still staying in touch with the banker or broker, and seller, and when the deal came back around they were there and ready to take advantage of the situation. A fringe benefit of this situation is you get the benefit of time to see how the company has performed since you originally looked at it.

3. If you win a deal in a process, ask yourself “why did I win the deal”.

We recently got a call from an Independent Sponsor who was very excited about the company he just got under LOI and was bragging about the fact that he beat out as many as 6 private equity firms that he was bidding against. When we asked about

the valuation he said, “I won it at 10x EBITDA, and everyone else was at 7x-8x EBITDA.” He went on to explain that he saw potential in the company that no one else saw which was why he was comfortable paying more for the company. This might be true, but does that mean that someone investing in you is going to buy into your same thesis? Many times if no one else is bidding in the range you are, the question should be “what do they see that I am not seeing”? It’s at least worth asking the question before signing the Letter of Intent.

There are many reasons that Independent Sponsors can win deals in a process against funded sponsors. This often involves a seller that is interested in not just getting top dollar for their business. Instead, they often prioritize selling to someone that they trust or feel will be a good steward of their people and legacy. Focus on building relationships with the seller to help them understand that you are the right buyer of the business and not just going to pay them the highest valuation.

4. Remember, there is always another deal. Deals can come and go, but there will always be another deal out there. It’s hard to remember this

in the moment when you are four months into a specific deal, if it’s been a while since you have closed a deal, or if it’s your first deal as an Independent Sponsor and you have been trying to get a deal closed for 12-24 months without any income. From personal experience, when I get worried about the next deal, it is often helpful to step back and look over the last few years or decade. When we do that as a firm, we are often reminded that while deal flow might vary from month to month or quarter to quarter, there are always new deals that will be coming to the market. While they might not be here today, they will come. A surfer once told me, “There is always the another wave”.

In summary, being disciplined around valuations can be tough. It’s like sticking to a diet or going to the gym every day, there are always temptations in our lives that want to try and distract us from our goals or discipline. When it comes to company valuations, there is not a “one size fits all”. But regardless choose to be “valuation conscious” as you pursue new deals. This will pay off in the long run and has the potential to help you make sure you spend time on deals that will lead to the returns and exits you want.

DREW BRANTLEY Managing Director

Frisch Capital Partners drew@frischcapital.com 706-227-4144

Drew is a serial entrepreneur having started 5 businesses, sold a few and still owns some. He knows what it’s like to be in your shoes. He sees the Independent Sponsor model as the method executives and industry experts can take to own and run already established businesses. He now dedicates his career to helping individuals buy companies, find greater success and live life on their own terms.

FEATURED BUSINESS LEADER

MATT HARNETT

MATT HARNETT Lower Middle Market Investing with a Steady Hand

Matt Harnett, a founding partner at Tecum Capital, has been investing in lower middle market companies for nearly two decades. Based in Pittsburgh, PA, Tecum was originally formed in 2006 as the merchant banking subsidiary of a regional bank. In 2013, the investment team spun out to form Tecum Capital as an independent firm.

Since then, the firm has invested over $1 billion across more than 135 platform and add-on acquisitions. Its capital comes from a range of institutional investors, including financial institutions, pension funds, endowments, and family offices. Tecum focuses on providing capital to businesses with strong management teams, often during ownership transitions or growth initiatives.

Matt highlights the importance of structuring investments that align interests across parties. Earnouts, seller notes, and other tools are used thoughtfully to balance risk and reward.

He notes that these structures are most effective when there is open communication and shared expectations from the outset.

Internally, Tecum emphasizes values such as humility, accountability, and curiosity. Matt believes that being straightforward and clear with all stakeholders—including business owners, advisors, and investors—is central to how the firm operates. He also reflects on the importance of consistency, noting that Tecum’s leadership team has been investing together for over 18 years.

With deep experience through multiple economic cycles, Matt and the Tecum team continue to focus on what they know best: investing in lower middle market companies through thoughtful structures and long-term partnerships.

Rooted in Growth: CERVANO CAPITAL’S STRATEGIC INVESTMENT

IN FROM THE GROUND UP

BY JUSTIN BENSHOOF

CERVANO CAPITAL

In the evolving landscape of middle-market investments, private equity firms are increasingly recognizing the untapped potential of essential service industries. Among these, commercial landscaping presents a particularly compelling opportunity, characterized by recurring revenue, recession resistance, and a fragmented market ripe for consolidation. This article will discuss how:

• Independent Sponsors recognize the utility and value of essential service businesses;

• Independent Sponsors are value add partners to founders;

• The recent partnership between Cervano Capital and From The Ground Up (“FTGU”) demonstrates how private equity can unlock value in essential service industries; and

• By combining FTGU’s operational excellence

with Cervano’s strategic expertise and financial backing, the company is now positioned for significant regional expansion while staying true to its commitment to service quality and customer satisfaction.

THE GREEN GOLDMINE: UNDERSTANDING THE COMMERCIAL LANDSCAPING SECTOR

The $150+ billion U.S. commercial landscaping industry has demonstrated remarkable resilience across economic cycles. Even during the Great Financial Crisis, the industry declined only 7% peak-to-trough before quickly rebounding. More recently, during the COVID-19 pandemic, the sector grew by 2% while many other industries faced

significant contraction.

This resilience is rooted in the essential nature of landscaping services. Commercial properties require ongoing maintenance to preserve value, ensure compliance, and enhance tenant satisfaction. For property managers, outsourcing these services enhances cost efficiency while meeting increasingly strict landscaping regulations.

Despite its size, the industry remains highly fragmented, with over 600,000 service providers nationwide. Even the top 150 companies collectively account for just 12% of total market revenue, creating a highly attractive environment for strategic consolidation. Leading private equity firms—including Harvest Partners, The Sterling Group, and Pritzker Private Capital—have launched

dedicated platforms in the space, fueling an acceleration in transaction activity.

FROM THE GROUND UP: A MIDWEST SUCCESS STORY

Founded in 2014 by Mitch Mulert, From The Ground Up has rapidly evolved from a part-time lawn care business into a regional leader in commercial landscaping services. Over the past five years, the company has achieved a compound annual growth rate (CAGR) of approximately 40%, while maintaining strong profitability.

FTGU’s 80%+ commercial client base spans industrial, office, medical, and HOA properties, with over 800 customers and approximately 85% under contract—providing a stable, predictable revenue

stream. Importantly, no single customer accounts for more than 5% of gross profit, mitigating concentration risk.

FTGU’s service model is built around three core segments:

1. Landscaping Maintenance – Contracted, scheduled services including mowing, seasonal clean-up, aeration, and fertilization.

2. Landscaping Enhancements – Value-added services such as plant replacements, small hardscape installations, and storm cleanup.

3. Winter Services – Snow removal and ice management, a critical offering in Minnesota’s harsh winters.

WINTER SERVICES: A MISUNDERSTOOD RECURRING REVENUE STREAM

While some investors perceive winter services as unpredictable, weather-dependent revenue, FTGU’s contractual structure ensures a stable and recurring income stream.

• Guaranteed Seasonal Contracts – Fixed monthly payments, regardless of snowfall levels, creating a recession-proof revenue base.

• Usage-Based (“Per-Push”) Contracts – Reliable revenue driven by strict zero-tolerance policies for snow and ice, given commercial liability concerns.

Unlike residential customers who may handle light snowfall themselves, commercial properties require immediate and professional snow and ice management, making this segment highly stable

and profitable.

GROWTH CATALYSTS AND STRATEGIC DIRECTION

With Cervano Capital’s backing, FTGU is now positioned to accelerate growth through four key initiatives:

1. Cross-Selling and Wallet-Share Expansion – Increasing service adoption among existing customers.

2. New Customer Acquisition – Strengthening sales processes through CRM enhancements, performance metrics, and targeted marketing.

3. Geographic Expansion – Launching new branches via greenfield development and acquisitions.

4. M&A Strategy – Acquiring complementary landscaping businesses to broaden service offerings and drive scale efficiencies.

CERVANO CAPITAL: A VALUEADDED PARTNER

Cervano Capital brings substantial expertise to this partnership. Led by Justin Benshoof, a private equity veteran with nearly 20 years of experience at Caltius Equity Partners and Norwest Equity Partners, Cervano specializes in essential service businesses where operational improvements and strategic acquisitions drive value.

THE INDEPENDENT SPONSOR

ADVANTAGE

Recognizing shifting investor preferences, Benshoof founded Cervano Capital in 2024 as an independent sponsor—a model that is increasingly attractive to investors seeking deal-by-deal

flexibility over traditional private equity funds. Independent sponsors offer:

• Lower costs compared to traditional PE funds.

• A-la-carte investing, allowing investors to selectively participate in deals.

• Avoidance of blind pool risk, giving investors more control over capital deployment.

A CASE STUDY IN FOUNDERFRIENDLY GROWTH

The Cervano-FTGU partnership is a textbook example of how independent sponsors can partner with founder-led businesses to scale responsibly.

Rather than imposing rigid corporate structures, Cervano’s model empowers founders—ensuring that Mitch Mulert continues to lead FTGU while receiving the strategic and financial resources needed to grow. This approach preserves the company’s entrepreneurial spirit, protects its strong culture, and enhances its ability to attract and retain top talent.

Benshoof recognizes that people are the core of service businesses. His investment philosophy is not about replacing leadership, but about amplifying

the strengths that made FTGU successful in the first place.

CONCLUSION: CULTIVATING SUSTAINABLE GROWTH

The partnership between Cervano Capital and From The Ground Up demonstrates how private equity can unlock value in essential service industries. By combining FTGU’s operational excellence with Cervano’s strategic expertise and financial backing, the company is now positioned for significant regional expansion while staying true to its commitment to service quality and customer satisfaction.

As the commercial landscaping sector continues consolidating, companies that can scale efficiently while preserving their service quality will emerge as industry leaders.

For investors evaluating fragmented, essential service industries, this partnership serves as a compelling case study—demonstrating that some of the most attractive investment opportunities lie in everyday services that keep America’s commercial infrastructure running smoothly.

JUSTIN BENSHOOF Founder & Managing Director

Cervano Capital

Justin Benshoof brings over 20 years of investing and transaction experience across diverse industries, including business services, industrials, technology, and consumer sectors. Throughout his career in private equity, Justin has earned a reputation for creating successful partnerships with founders to scale their businesses and unlock growth opportunities. Justin has led transactions totaling approximately $1 billion.

U.S. TAX ISSUES FOR CANADIAN PARTNERS IN PARTNERSHIPS THAT MAKE U.S. INVESTMENTS

BY SETH LEBOWITZ

SADIS & GOLDBERG

In considering a prospective investment in the United States via a partnership, Canadian investors should keep U.S. tax issues in mind, in addition to other relevant U.S. and Canadian legal and tax issues. This article highlights some big-picture U.S. federal income tax issues that Canadian investors would do well to be aware of when considering this type of investment.

The discussion assumes an individual Canadian resident investor that is not also a U.S. citizen or resident and that is considering one or more U.S. investments through one or more partnerships, although many of the same issues would apply to a Canadian corporate investor as well. Each real-life investment opportunity will need to be analysed in detail based on its specific facts and its specific governing legal documents, but knowledge of some of the potential traps for the unwary can help an investor to avoid or mitigate them.

CLASSIFICATION AS A PARTNERSHIP FOR U.S. TAX PURPOSES

Most investment opportunities into entities treated as partnerships for U.S. tax purposes will involve a limited partnership (whether organized under U.S. or Canadian law). However, the classification of a legal entity as a partnership (or otherwise) for U.S. tax purposes is largely elective, and therefore at times other types of entities, such as limited liability companies, may also be treated as partnerships for these purposes. Less frequent, but not unheard of, is an entity organized as a limited partnership that is treated as a corporation, rather than as a partnership, for U.S. tax purposes.

Therefore, a preliminary matter to confirm is whether the investment vehicle in question is classified as a partnership for U.S. tax purposes (and if it isn’t, how is it classified?), no matter what label is

put on the vehicle for other purposes, such as U.S. state or Canadian provincial law. The remainder of this article uses the term “partnership” to refer to an entity treated as such for U.S. tax purposes, and the relevant principles can be extended to multiple types of entities that are classified as such.¹

PASS-THROUGH TAXATION OF PARTNERS

Perhaps the most salient feature of a partnership in this context is that the partnership is a passthrough entity for U.S. tax purposes, which means that the amount and nature of the partnership’s income and deductions generally “pass through” to its partners, including non-U.S. partners, with implications on partners’ tax liabilities and filing obligations. This pass-through treatment applies whether or not the partnership distributes anything to its partners and applies through multiple tiers of partnerships. This principle has different results in

different contexts, as discussed below.

U.S. BUSINESS

A non-U.S. person deemed for U.S. tax purposes to be engaged in a business² within the United States is subject to U.S. federal income taxation on that person’s net income that is treated as being “effectively connected” with that business. A nonU.S. person in this situation is required to file a U.S. federal income tax return and to pay taxes on the “effectively connected” income. Few will be surprised that in the case of, say, a Canadian citizen who travels to the United States for a period of time to engage in business activities will be subject to U.S. on the income earned in the United States. Perhaps less intuitive is that a non-U.S. partner of a partnership (whether that partnership is organized in the United States or elsewhere) is deemed to be engaged in any U.S. business the partnership is engaged in, no matter how small an interest such partner might own in the partnership, and even if such partner is a totally passive investor. This attribution of a partnership’s U.S. business applies through multiple levels of partnerships, so a nonU.S. partner can be treated as engaged in a U.S. business conducted by a partnership in which such person has only indirect ownership through one or more tiers of partnerships.

A partnership with non-U.S. partners that is deemed to be engaged in a U.S. business is required to withhold a portion of the non-U.S. partners’ income and pay it over to the IRS. Additionally, such a partnership may be required to withhold taxes on a redemption of a non-U.S. partner’s interest, and either a purchaser or the partnership itself may be required to withhold on a sale or disposition of that

interest. Amounts withheld in respect of a partner may be claimed as a credit against that partner’s substantive U.S. tax liability when the partner files a U.S. tax return.

Some activities that are deemed to be the conduct of a business for these purposes may not strike an investor as a “business.” For example, a partnership that pools capital from its partners and regularly lends money to businesses or individuals in the United States is likely to be treated for U.S. tax purposes as engaged in a U.S. business, alongside more traditional businesses like a hair salon, a sandwich shop or a landscaping concern (not to mention a bank).

Since non-U.S. persons who aren’t already U.S. taxpayers typically do not wish to take on obligations to file U.S. returns and write checks to the U.S. Treasury, a Canadian investor investing in the United States via a partnership should investigate, as part of the diligence process, whether the partnership is expected to engage in a U.S. business, and possibly to seek contractual assurances in this regard, in order to avoid the U.S. tax consequences to a non-U.S. person of being a partner in a partnership engaged in a U.S. business. Such contractual assurances might include a commitment from the partnership not to engage in such activities (for example, in a case where a partnership’s intention is to invest only in publicly traded U.S. securities) or a commitment from the partnership to interpose a corporation between the non-U.S. partners and the U.S. business, as discussed below.

In a situation where engaging in a U.S. business

cannot be avoided (for example, where the investment opportunity itself necessarily involves a U.S. business), the impact on a Canadian investor of investing through a partnership frequently can be mitigated by interposing one or more (often, though not necessarily exclusively) U.S. corporations between the Canadian investor and the U.S. business. The corporation itself would be subject to U.S. tax on its net income, but if structured properly, it can prevent the Canadian investor from being personally subject to U.S. net income tax and return filing obligations. The business of a corporation generally is not attributed to its shareholders in the way that a partnership’s business is attributed to its partners, so a Canadian investor generally would not be subject to U.S. tax on the operating income of the business and (with certain exceptions, notably with respect to “U.S. real property holding corporations,” as noted below), the Canadian investor would not be subject to U.S. tax on gain from a sale of such investor’s stock in the public or private markets. Interposing a corporation can be a simple and effective strategy when the investor’s goal is not to receive periodic distributions of operating income from the U.S. business, but rather to reap the benefit of the business’s growth via a future sale. In other cases, it may be more complex but can still be effective.

INVESTMENTS IN U.S. REAL PROPERTY

Special rules (the statutory basis for which is often referred to as “FIRPTA”) require the gain or loss of a non-U.S. person from disposition of a “U.S. real property interest” to be taken into account as though the gain or loss were “effectively connected” with a U.S. business, resulting in similar obligations to

pay U.S. taxes and file U.S. tax returns as described above. A partnership interest in a partnership that owns one or more U.S. real property interests is considered itself to be a U.S. real property interest on a look-through basis, and withholding of taxes in respect of a non-U.S. partner may be required in the event of the partnership’s disposition of a U.S. real property interest or a redemption or other disposition of the non-U.S. partner’s interest in the partnership. Again, amounts withheld in respect of a partner may be claimed as a credit against that partner’s substantive U.S. tax liability when the partner files a U.S. tax return.

For example, imagine a Canadian partner in a partnership that purchases and passively holds for investment a vacant lot located somewhere in the United States, and the partnership later sells the vacant lot at a gain. Although passively holding a vacant lot may not itself be a business for U.S. tax purposes, FIRPTA would treat the Canadian partner’s share of the gain as effectively connected with a U.S. business simply because it is U.S. real estate. The definition of a U.S. real property interest is not always obvious. In addition to land and buildings in the United States, other categories of U.S. real property interests can include mineral interests, certain items that would ordinarily be considered personal property but that are incorporated into real property such as a building, and “any interest other than an interest solely as a creditor” (such as stock or convertible debt) in a U.S. corporation that cannot be determined not to be a “U.S. real property holding corporation,” which means interests such as stock or convertible debt in a corporation 50% or more of the assets of which (measured using prescribed rules) consist of U.S. real property interests. An important exception to

the imposition of U.S. tax on the disposition of stock in a U.S. real property holding corporation exists for a non-U.S. person that owns (after the application of certain constructive ownership rules regarding related party ownership) no more than 5% of a publicly traded class of shares. This exception can allow an investment in shares of a private U.S. real property holding corporation that later goes public to be disposed of without imposition of U.S. tax on a non-U.S. investor.

INVESTMENTS NOT INVOLVING A U.S. BUSINESS OR U.S. REAL PROPERTY

Many investment partnerships, such as those whose assets consist of corporate stock and/or bonds, generally would not be treated as engaged in a U.S. business. However, a Canadian partner in such a partnership would be subject to U.S. withholding tax on certain types of U.S.-source income of the partnership. This withholding tax is applied on a gross basis (i.e., without any deductions for expenses) at a rate of 30% (which rate may be reduced, including in certain

circumstances to zero, by the U.S.-Canada Income Tax Treaty). Dividends of U.S. corporations and royalties that are deemed to have a U.S. source are examples of payments subject to this withholding tax, subject to possible treaty-based reduction. Most interest is exempt from this tax under the U.S. tax law’s “portfolio interest” exemption, and even interest that does not qualify for this exemption (such as interest paid by a U.S. corporation to a Canadian investor that, either alone or along with certain related parties, owns 10% or more of the voting stock of the corporation) may be exempted from U.S. withholding tax for a Canadian investor that qualifies for benefits under the U.S.-Canada Income Tax Treaty.

Importantly, this withholding tax is not imposed on capital gains from the sale of stocks and bonds. Therefore, a Canadian partner in a partnership that sells securities of U.S. issuers generally (subject to the FIRPTA rules regarding U.S. real property holding corporations discussed above) would not be subject to U.S. withholding or other taxes on the gain from disposition of those securities.

1 Limited liability companies require special consideration in the case of cross-border U.S.-Canada investments because of a possible mismatch between the treatment of these entities under the U.S. and Canadian tax systems. Although an investor should always consider the application of both countries’ laws, investments involving limited liability companies are an excellent example of the importance of thinking about both U.S. and Canadian rules and of advisors on both sides of the border working together.

2 The U.S. tax law uses the term “trade or business,” but since it does not differentiate between a trade and a business, the term “business” is used herein for simplicity.

SETH LEBOWITZ Partner

Sadis & Goldberg slebowitz@sadis.com

Seth Lebowitz is a partner in the firm’s Tax group. Seth advises clients on the taxefficient planning and execution of a broad range of transactions, with a particular focus on the formation, operation and investing activities of private equity and hedge funds. Seth has experience with: Domestic and international tax issues relating to fund structuring

• Joint ventures and partnerships

• Corporate and real estate investing

• Lending Securities trading

• Distressed investing

• Financial Products

What is a Professional Employer Organization (PEO), and Why Using a PEO Brokerage Advisor is the Smart Choice?

BY LUKE VAN EVERY

TRUE

COMPARE PEO, A STABLE ROCK COMPANY

Organizations seek ways to streamline operations, reduce costs, and enhance employee satisfaction. This is especially relevant today, with sky high medical insurance premiums and increasingly complex state, federal, and local compliance requirements. One of the most effective ways to achieve these goals is using a Professional Employer Organization (PEO). A PEO partners with businesses of varying sizes to provide human resources (HR), payroll, benefits administration, risk management, and compliance services. Working directly with a PEO has its benefits, but a PEO brokerage advisor (“PEO Advisor”) can help manage costs and find the best

fit for your company’s unique needs.

This article explores why using a PEO Advisor can be a more effective choice than going direct, the value PEOs offer businesses, and how they work.

WHAT IS A PEO AND WHY DOES IT MAKE SENSE FOR YOUR BUSINESS?

A PEO is a company that provides comprehensive HR outsourcing services to businesses, essentially becoming a co-employer of your workforce. In this co-employment relationship, the PEO takes on many of the employer responsibilities, such

as handling payroll, providing employee benefits, managing workers’ compensation insurance, and ensuring compliance with labor laws. The client company, meanwhile, continues to manage day-today operations, hiring, and business strategy.

PEOs make sense for businesses for several reasons:

1. Expertise in HR Management: Managing HR can be time-consuming and complex, especially when handling tax filings, employee benefits, compliance with ever-changing labor laws, and worker’s compensation claims. PEOs are specialists in these areas and ensure that your business stays compliant. By outsourcing these functions to a PEO, businesses can focus on their core strategy, knowing that HR and compliance responsibilities are being handled by experts.

2. Access to Better Employee Benefits: PEOs often pool multiple small businesses together, allowing them to offer large-group benefits (e.g., health insurance, retirement plans, and other benefits) at competitive rates. Small businesses that may otherwise struggle to provide comprehensive employee benefits can now provide high-quality benefits packages that can help attract and retain top talent.

3. Scalability and Flexibility: As your business grows, so do your HR needs. PEOs scale with your business, offering flexible services that adapt to changing workforce demands, making them ideal for companies with seasonal or fluctuating staff.

4. Reduced Risk and Liability: PEOs are responsible for various employment-related liabilities, such as managing workplace safety, unemployment insurance claims, and ensuring compliance with federal, state, and local laws.

By partnering with a PEO, you can reduce your exposure to the financial and legal risks associated with employee management.

HOW DOES A PEO WORK?

The core of a PEO’s offering is the co-employment relationship. Here is a closer look:

• Co-Employment Structure: In a co-employment relationship, the business owner remains the “primary” employer, retaining control over employee work assignments, daily operations, job duties, and any other employee-related decisions such as hiring, firing, and promotions. Meanwhile, the PEO becomes the “secondary” employer, taking on administrative HR tasks such as payroll processing, compliance with tax laws, employee benefits administration, and risk management (e.g., workers’ compensation and unemployment insurance).

• Payroll and Tax Administration: One of the most crucial functions of a PEO is managing payroll. The PEO handles payroll, including wage calculation, tax deductions, and filing required paperwork, ensuring compliance with tax laws and freeing up your time for business operations.

• Benefits Administration: PEOs often have the buying power to negotiate better rates for employee benefits like health insurance, dental, vision, and retirement plans. They handle the administration of these benefits, including open enrollment, claims management, and compliance with the Affordable Care Act (ACA).

• HR Compliance: Keeping up with labor laws, regulations, and compliance requirements can be overwhelming. PEOs provide services to ensure that your business is always in compliance with federal and state employment

regulations, including those related to wage and hour laws, benefits administration, employee classifications, and workplace safety.

• Workers’ Compensation and Risk Management: PEOs typically provide workers’ compensation coverage and implement risk management practices to minimize workplace accidents and ensure a safe work environment. In the event of a claim, the PEO manages the process, reducing the burden on the business owner.

WHY USE A SPECIALIST – A PEO ADVISOR?

1. Tailored PEO Selection

PEOs vary in the services they offer, pricing structures, and experience working with businesses of different sizes and industries. A PEO Advisor works with multiple PEOs, and applies stringent selection criteria (e.g., certifications, customer care, regional expertise) to help you choose the best PEO for your specific business requirements.

• Industry Fit: A PEO Advisor understands the strengths and weaknesses of different PEOs across various industries. They can match your company with a PEO experienced in your field, ensuring a more seamless partnership.

• Size-Specific Solutions: PEOs often specialize in serving companies of a particular size, whether it’s small businesses, mid-sized companies, or large enterprises. A PEO Advisor can identify the right PEO that aligns with your business size and growth trajectory.

• Niche Markets and Services: PEOs often offer specialized services tailored to certain markets, regions and levels of service, such as whiteglove or standard offerings. PEO Advisors with a

focused expertise on the PEO market can guide you to the right provider, always keeping your best interests in mind.

By leveraging the PEO Advisor’s extensive network and knowledge, you can avoid the trial and error of choosing a PEO that might not meet your business needs.

2. Expertise in PEO Contract Negotiation

PEO contracts can be complex, involving a multitude of terms and conditions around service fees, liabilities, and responsibilities. The nuances in these agreements can significantly impact your business operations, so having an expert to guide you through the process is essential.

A PEO Advisor’s role is to navigate these complexities and negotiate favorable terms on your behalf. They are well-versed in the language of PEO contracts and can help you understand key terms such as:

• Cost Structures: PEO Advisors can help clarify the fee models (e.g., per employee per month or percentage of payroll) and help you assess which pricing model makes the most financial sense.

• Service Levels: PEO Advisors ensure that the scope of services offered aligns with your company’s needs. They can advocate for customized benefits and other services that are crucial to your business, securing the best value for your investment.

• Benefits: PEO Advisors can help select or match your current plans to those offered by the PEO, simplifying the selection process. For example, many PEOs provide not only basic medical, dental, and vision benefits, but also options

like pet insurance, short-term and long-term medical care, and other forms of insurance.

• Compliance and Risk Management: PEO Advisors also make sure that your PEO is compliant with all relevant laws and regulations, reducing the risk of costly penalties.

3. Time Savings

Running a business demands significant focus and choosing the right PEO can be time-consuming. From researching potential PEOs and meeting with representatives to evaluating service offerings and comparing contracts, the process can quickly become overwhelming.

A PEO Advisor streamlines this by handling the research, narrowing down your options, and presenting the most suitable PEOs for your business. This saves you time and effort, allowing you to focus on running your business instead of getting bogged down by administrative tasks.

4. Access to Better Pricing and Offers

Due to their relationships with multiple PEOs, PEO Advisors often have access to exclusive pricing, promotions, or discounts that might not be available to businesses that engage with PEOs directly. Advisors can leverage their network to secure more favorable terms, which can translate into significant cost savings for your business.

Furthermore, PEO Advisors often have a better understanding of industry standards and can help ensure that you are not overpaying for services. By comparing multiple offers, a PEO Advisor can help you identify the best price-to-service ratio, ensuring that you receive the most value from your PEO partnership.

It is also important to note that the right Advisor can identify a PEO that is “trying to buy business” in year one before hitting you with a big price increase in year two.

5. Objective Advice and Guidance

When you go directly to a PEO, its sales representatives are naturally incentivized to sell their services. While many PEOs operate with high levels of professionalism and integrity, there may still be an element of bias in the information they provide, as they are primarily focused on promoting their own services.

A PEO Advisor, on the other hand, works as a neutral third party, ensuring that you receive objective advice based on your company’s unique needs and priorities. PEO Advisors are incentivized to match you with the best PEO solution, not just the one with the best commission.

This impartial advice is invaluable when navigating the many available options. Advisors offer guidance based on their industry knowledge, helping you make an informed decision without pressure or hidden agendas.

6. Ongoing Support and Relationship Management

Choosing a PEO is just the beginning of the partnership. After the contract is signed, ongoing support is crucial to ensure that the relationship remains effective. A PEO Advisor often provides continuous oversight throughout the partnership, ensuring the PEO delivers on its promises and resolving any issues that arise.

In contrast, businesses working directly with a

PEO may lack an intermediary to help manage the relationship. A PEO Advisor acts as an advocate for your business, addressing problems and ensuring that the PEO’s services adapt to your evolving needs.

For example, if your staff experiences a significant life events before annual renewal, reaching out to your PEO Advisor early can help you explore the PEO market and manage the cost of annual benefit increases.

7. Risk Mitigation

Hiring a PEO involves transferring significant responsibility for payroll, taxes, benefits administration, and compliance. If the PEO fails to deliver in these areas, it can create substantial risks for your business.

A PEO Advisor helps mitigate these risks by thoroughly vetting PEOs before recommending them to clients. This includes assessing the PEO’s financial stability, industry reputation, compliance track record, and customer service quality. PEO Advisors can help you avoid the pitfalls of working with a PEO that may not have the resources or expertise to handle your company’s needs. For

example, certain certifications and affiliations (e.g., Certified PEO (CPEO), Employer Services Assurance Company (ESAC), NAPEO, SOC 1, SOC 2, or ISO 9001) provide extra assurance that your risks are effectively managed.

CONCLUSION

Using a PEO Advisor offers businesses a comprehensive and efficient way to find the right PEO partner. From tailoring PEO selection to securing favorable contract terms, PEO Advisors add significant value by leveraging their expertise, saving time, and ensuring better pricing and service. If you’re looking to streamline HR processes and reduce risks, working with a PEO Advisor can provide a more customized, cost-effective solution than going directly to a PEO.

Ultimately, the goal is to find a PEO that truly fits your company’s unique needs, and a PEO Advisor’s guidance helps ensure this happens. Partnering with a PEO Advisor gives you access to expert advice, a more personalized approach, and a smoother PEO onboarding

BORIS ONEFATER

Co-Founder & Principal

Stable Rock

At Stable Rock, we redefine outsourcing for small and mid-sized enterprises, offering unmatched financial and operational support. Leveraging advanced technologies and our seasoned team, we deliver bespoke solutions tailored to non-investment management businesses across diverse commercial sectors.

Sale Leaseback Misconceptions by Private Equity Investors

BY STEPHEN CHENG SLB CAPITAL ADVISORS

Real estate can play a meaningful role in a private equity buyout. When an M&A target owns some or all of its operational real estate, in many cases, those properties can be monetized with the capital reallocated through a sale leaseback to fund a portion of the buyout.

While conceptually this is simple, we have found there are misconceptions about the use of sale leasebacks in buyouts and the advantages SLBs confer upon PE sponsors. Stephen Cheng, a partner with SLB Capital Advisors, which focuses exclusively on sale leasebacks, offers insights on typical misconceptions of these transactions held by private equity investors.

MISCONCEPTION #1:

WE SHOULD ONLY PURSUE A SALE LEASEBACK WHEN THE PROCEEDS ARE A SIZEABLE PORTION OF THE TOTAL DEAL SIZE.

The top-level answer is that while a sale leaseback

might not make sense to run concurrently if it’s a minuscule proportion of aggregate value, a lower bound of say 10%-15% is where many of our sponsor clients find that SLBs start to make a lot of sense.

Private equity firms are reluctant to commit to a sale leaseback process because it may detract management attention from the larger and more important M&A transaction. In a complex and quickly moving transaction where the sponsor is managing multiple work streams, it may seem that a smaller portion of the capital stack may not be material enough to commit to an entirely separate process.

This is where a sale leaseback advisor comes in. They can take on not just the broad marketing process but also, post-LOI, facilitate due diligence, lease negotiations and focus on the end goal of the overall M&A transaction. Overall, they can significantly reduce the threshold where the sale leaseback is value accretive for the overall transaction.

Importantly, regardless of size, the gap between business EBITDA multiples and implied real estate multiples (as shown in the chart below) creates a compelling arbitrage opportunity across sectors, which can only be unlocked through a sale leaseback.

MISCONCEPTION #2: A SALE LEASEBACK WILL LIMIT OUR ABILITY TO SELL THE

DOWN THE ROAD.

COMPANY

Sponsors are, and rightfully should be, hyperfocused on the freedom to exit the business without other constituencies creating a ‘tail wagging the dog’ scenario. In particular, for operators with multiple locations where a subset of the properties is monetized through a sale leaseback, the prospect of a new landlord having veto

power over a broader transaction may dissuade consideration of a sale leaseback in the first place. Understandably, landlords are committing to the sale leaseback under certain credit conditions, and they will seek protections against real or perceived deterioration of the credit. However, having an advisor with an understanding of both the landlord and the sponsor’s interests can help bridge that gap, reducing endless turns of legal docs.

While change of control issues cannot be eliminated, they can be substantially de-risked by stipulating conditions under which the sponsor can assign the lease without landlord consent. These conditions can be negotiated during the marketing process, led by the advisor, to reasonably cover the scenarios under which the sponsor would seek a change of control.

MISCONCEPTION #3: A SALE LEASEBACK WILL HOLD UP THE COMPLETION OF THE BUYOUT.

Net, net, the real estate transaction is simpler than the buyout. A good advisor will run the transaction and structure a timeline that is predicated on the buyout’s closing date. Often the sale leaseback investor is ready to go to the closing table, while the timeline on the buyout slips. This generally has no impact on the buyer’s desire to own the real estate, but rather means that when the buyout is truly at hand, the real estate investors are ready to go on a moment’s notice.

MISCONCEPTION #4: WE SHOULD WAIT UNTIL INTEREST RATES GO DOWN BEFORE DOING A SALE LEASEBACK.

Post Great Recession through 2022, commercial property owners could count on cap rate compression to create value. Since then, this strategy has proven to be the undoing of many a real estate investor. The idea of capital allocation

by an OPCO predicated on cap rate compression, and based on interest rates declining, is a strategy better left for real estate investors to pursue. For sponsors, determining the optimal use of capital tied up in real estate, not interest rate fluctuations, should be driving the conversation.

MISCONCEPTION #5: REAL ESTATE IS A SIDESHOW TO OUR PRIMARY MISSION OF BUYING AND EXITING COMPANIES AND EARNING A RETURN FOR OUR INVESTORS.

We believe there are very few reasons for OPCO private equity investors to own real estate. Most sponsors attract investors by delivering IRRs north of 20%. Having equity capital tied up in real estate generally presents a headwind to achieving that objective, since owned real property is most typically a low-return asset. Mathematically and in practical terms, hitting the return sponsors are aiming for necessitates shedding assets with lower returns, and these assets can be efficiently shed through the sale leaseback process.

STEPHEN CHENG Partner

SLB Capital Advisors

Stephen Cheng is a partner with SLB Capital Advisors and is responsible for the origination and execution of commercial real estate transactions for owners, operators and investors. Mr. Cheng has 20 years of experience in the real estate markets, including execution of sale leasebacks, capital raising, joint ventures and M&A. His experience includes real estate investment banking with RBC Capital Markets and Oppenheimer & Co. He earned his degree in applied mathematics and economics at Harvard University.

Private Credit Funds: Structuring Trends and Strategies

BY DAVID FITZGERALD & JACOB SHIFFER

& GOLDBERG

SADIS

Private credit continues to expand its role as an important component of alternative investments, emerging as an attractive asset class for fund managers and institutional investors alike. As competition intensifies and structures evolve, fund managers and investors are establishing consistent terms with respect to private credit fund formation, structuring, and fees, while also adapting to market changes.

The financial crisis of 2008 led to a tightening of the syndicated loan market, due to stringent regulations on banks. Capital requirements imposed on lenders providing loans to riskier borrowers led to fewer clients receiving such loans. In its place, private credit emerged as an alternative to syndicated loans that provides borrowers with the capital they need on terms that can be more flexible for both borrowers and lenders.

This article outlines the following:

• latest market developments;

• best practices in structuring private credit funds; and

• offers insights for fund managers, investors, and institutions exploring or expanding their footprint within this asset class.

PRIVATE CREDIT FUNDAMENTALS.

Private credit refers to direct lending and other debt financing solutions provided by non-bank lenders— often through private funds—typically to middlemarket companies seeking flexible alternatives to traditional financing. These loans are privately negotiated and customized to borrower needs. In exchange, investors earn higher yields than those

offered through traditional syndicated loans. The most common private credit strategy involves direct lending with fund managers originating loans directly to middle-market companies. These transactions bypass traditional banking intermediaries, giving funds greater control over terms and pricing and avoiding the more stringent regulated bank underwriting requirements.

TRADITIONAL PRIVATE CREDIT FUND STRUCTURES AND FEE MODELS.

Most private credit fund structures have historically followed a private equity model, though with certain important distinctions. Private credit funds typically operate on shorter lifecycles than traditional private equity funds—often six to seven years in total—with investment periods ranging from two to three years. The shortened period is a result of the liquidity demanded by credit investors who typically demand quick deployment and reinvestment of capital. As a result, fund managers frequently find themselves in continuous fundraising cycles, fighting against potential duration mismatches between the term of the fund, investor liquidity needs and/or borrower needs.

Fee arrangements in private credit funds traditionally included a management fee based on committed capital for the duration of the fund term. Like recent private equity structures, private credit funds generally structure the carried interest percentage payable to the general partner after a preferred return, or hurdle rate, to provide investors with some assurance on investment returns before they are required to pay-over their profits.

“ASTHEMARKETEVOLVES, PRIVATECREDITFUNDS HAVEADOPTEDNEW STRUCTURESTOALIGN

RECENT TRENDS IN PRIVATE CREDIT FUND STRUCTURING.

As the market evolves, private credit funds have adopted new structures to align their fee and liquidity terms with investor expectations. Some of the most significant shifts in recent years include calculating management fees based on invested capital rather than committed capital, evergreen funds, parallel fund structures, and capital recycling.

MANAGEMENT FEE BASED ON INVESTED CAPITAL

To accommodate both investors and fund managers, private credit funds now commonly use a management fee structure based on invested capital rather than committed capital, which leads to a lower fee payout once the principal

on an investment is returned to investors. Fund managers may also use a blended model that bases the management fee on committed capital during the investment period, and then transitions to a management fee based on invested capital thereafter, aligning with the traditional private equity model. Fund managers may use this blended structure when building the fund around an illiquid or long-term investment portfolio in order to generate fee income early in the lifecycle while reflecting a lighter workload later in the term when fewer new deals are being generated.

EVERGREEN FUNDS AND NAVBASED MANAGEMENT FEE

Evergreen funds have gained traction as an alternative to traditional closed-end private credit funds because open-ended and evergreen funds

allow for periodic subscriptions and redemptions, typically on a quarterly basis based on the NAV of the fund, aligning with the traditional hedge fund model. For investors, this provides periodic liquidity without sacrificing access to returns associated with the private credit sector. For fund managers, it creates a stable capital base that can support ongoing investment and portfolio growth without repeated fundraising cycles and eliminating issues that may arise with drawdowns.

However, this introduces added complexity, requiring complex valuation frameworks, timely reporting, and heightened transparency. Fund managers implementing this structure must invest in operational infrastructure to ensure that the NAV calculation is reliable and defensible. Further, the evergreen nature of the funds also requires managers to effectively manage duration risk, carefully calibrating the liquidity of the underlying credit portfolio with the liquidation terms of the fund. Fund managers should ensure the fund documents reflect accurate NAV calculation and liquidation procedures to prevent any mismatch between the underlying investment and the fund strategy.

PARALLEL FUNDS

Many sponsors now offer levered and unlevered vehicles operating side by side, also known as parallel funds. This approach enables different classes of investors to choose their preferred exposure, whether seeking conservative, unlevered returns or enhanced yields through the use of fund leverage. These arrangements require careful structuring to ensure proper allocation of expenses, management fees, and distributions. Clear and

detailed limited partnership agreements are critical to avoid conflicts and to preserve the economic integrity of each parallel vehicle.

RECYCLING PROVISIONS

Another important tool for private credit managers is a recycling provision, which allows fund managers to reinvest repayments during the investment period rather than immediately distributing proceeds to investors. Recycling provisions can boost fund returns and allow for a longer runway of capital deployment, benefiting fund managers looking to establish a long-term private credit fund.

However, recycling provisions must be transparently structured and clearly disclosed in fund documents. Some investors may not be fully comfortable with recycling, particularly when it involves reinvesting interest income or extending the duration of capital at work, preventing immediate liquidity. A welldrafted agreement should define which proceeds are eligible for reinvestment and outline when and how they will be returned to investors.

STRATEGIC PARTNERSHIPS AND SEED CAPITAL ARRANGEMENTS.

For many emerging managers in private credit funds, partnerships with seed investors can be an essential part of their private credit fund formation. These investments, often with family offices or institutional anchors, provide crucial early capital and operational support. In exchange, seed investors may negotiate preferential economic terms including a revenue share with respect to management fees as carried interest. In many cases, they also offer marketing credibility,

governance input, and back-office resources that can help new platforms scale quickly. For both fund managers and investors, these relationships present an opportunity to align interests and build long-term strategic value.

Additionally, some managers are leveraging Business Development Companies (BDCs)— regulated investment vehicles that may be public or private—to house private credit strategies. BDCs offer periodic liquidity and expand the pool of eligible investors. Whether structured as perpetual vehicles or with fixed terms, BDCs are becoming an increasingly popular option for sponsors seeking to expand distribution. (For more on alternative investment vehicles used in private credit, see our interview with Matt Harnett from Tecum Capital

Partners.)

As private credit continues to evolve, fund sponsors face a growing array of legal, structural, and operational decisions that impact fund success. From selecting the right fund structure, to negotiating fee terms and building in flexible investor options, the process of private credit fund formation demands careful planning and experience.

If you would like assistance with forming and structuring your private credit fund, or if you have any questions about the topics covered in this article, please contact David Fitzgerald (Partner) at dfitzgerald@sadis.com or 212-573-8428.

DAVID FITZGERALD

Partner Sadis & Goldberg

David Fitzgerald is a Partner in the firm’s Financial Services and Corporate Groups. David’s practice focuses on investment funds, securities, joint ventures, regulatory compliance and investment advisers. He regularly structures and organizes hedge funds, private equity funds, funds of funds, separately managed accounts and hybrid funds. Additionally, he advises private fund managers on structure, compensation, employment and investor issues, and other matters relating to management companies.

JACOB SHIFFER Associate Sadis & Goldberg

Jacob Shiffer is an associate in the firm’s Financial Services and Corporate groups. Jacob concentrates his practices on fund formation, mergers and acquisitions, and general corporate matters.

Prior to joining Sadis, Jacob served in the United States Air Force for eight years, where he worked as an Analyst.

EARNOUT SPOTLIGHT

DAN LEE

Partner

Garnett Station Partners

Dan is a Partner at Garnett Station Partners. Prior to joining GSP, Dan was a Partner and Co-Head of Consumer & Retail at Comvest Credit Partners. He served as a member of the Executive Committee and Investment Committee and played an instrumental role in growing the firm’s AUM from $250M to over $12B during his 13-year tenure. Prior to Comvest, Dan was a Senior Director at Dymas Capital, an affiliate of Cerberus, which he joined at inception and grew to be a leading sponsor finance platform with $3B AUM. Prior to Dymas, Dan spent time at Arthur Andersen, Heller Financial, and Salomon Smith Barney early in his career. Dan received an M.B.A. from the University of Michigan and is a graduate of the University of Notre Dame.

The Partnership Advantage: Preserving Independence While Overcoming Obstacles

BY DAN LEE GARNETT STATION PARTNERS

The private equity landscape has evolved dramatically over the past decade. With more players entering the market, independent sponsors are solidifying their reputation as agile deal makers and operators. They bring many unique traits to the table, including creative perspectives, specialized industry expertise, and entrepreneurial energy.

Whether you’ve recently launched your career as an independent sponsor or have been navigating the waters for years, independent sponsors fill a crucial gap in the market. However, it’s no secret

that this independence can come with challenges that create friction as you scale and compete for deals.

While there are multiple paths forward, each with their own merits, a strategic partnership with the right private equity firm is one option that can help solve these obstacles and mitigate risk.

In this article, we will explore three common friction points and how a private equity partnership may offer opportunities to overcome them, without sacrificing the independence that sets you apart.

01 CAPITAL UNCERTAINTY

The Challenge: As an independent sponsor, you face one of the most pressing challenges in the industry: pursuing deals without committed capital in place. This capital uncertainty often complicates the deal process. Time kills deals, and when timelines are stretch beyond expectations, delays can lead to missed opportunities —particularly against well-capitalized buyers who can present cleaner, faster paths to close.

The Opportunity: While there are several ways to address this issue, one effective solution is working with a private equity partner who has a proven track record of working with independent sponsors and/or who began as an independent sponsor themselves. Instead of sourcing new investors and capital for each opportunity, a PE partner can provide access to reliable capital to empower your ability to close deals.

This financial backing allows you to signal to sellers and intermediaries that you can execute with confidence, which then increases credibility. With funding concerns addressed early, you can focus your energy on what you do best—identifying unique opportunities and developing value creation plans that differentiate your approach.

02 SPEED AND EFFICIENCY

The Challenge: While nimble by nature, as an independent sponsor your ability to move quickly in the deal process can be hindered by limited internal resources and bandwidth.

multiple priorities yourself or rely on ad hoc support. Coordinating with various third parties, each with their own processes, timelines, and expectations, can slow things down. These inefficiencies can lead to bottlenecks at critical deal stages. Diligence may stall while waiting for specialized expertise. Execution might slow as documents move between various stakeholders. Most importantly, post-close planning and execution can suffer or be overlooked altogether.

The Opportunity: Speed can be a determining factor in closing a deal. If this is a consistent challenge you’ve faced, a private equity partner can support you with access to established teams with expertise, market insights, and value creation resources.

Direct access to underwriting professionals, industry specialists, and operational experts, allows you to conduct robust diligence without sacrificing speed. The right support structure empowers you to focus on post-close planning and value creation, preserving your vision.

03 INTEGRATION AND SCALE

The Challenge: Without a consistent source of capital, back-office support functions, and a playbook for execution, your growth can be difficult to maintain. Each new deal may require rebuilding your process from the ground up—consuming valuable time and resources, which makes the shift from a deal-by-deal mindset to a systematic approach more challenging.

Without dedicated staff across functions like M&A, operations, and legal, you are often forced to juggle

Implementing roll-up strategies in fragmented industries is a powerful investment thesis that can be applied to many market sectors. But, a roll-up

is a lot of work and can be a daunting challenge to take on alone. Even with a strong thesis and clear vision, executing roll-ups requires capital resources and operational support that can be difficult to secure.

You also might hesitate to invest in the tools needed for long-term success, such as broader sourcing networks and value creation resources. As competition for quality deals intensifies, these challenges become more apparent and can often limit how many additional opportunities you’re able to pursue.

The Opportunity: While there are various paths to achieving scale, a private equity partnership is one approach that can help bring structure and scale to your business model. The right partner can help build consistent frameworks for sourcing, diligence, execution, and portfolio management—unlocking efficiency and accelerating growth.

If your thesis involves a roll-up strategy, a PE partnership can provide the capital to execute on add-ons effectively and more seamlessly. Having an experienced partner can increase your

opportunities for success and mitigate risk.

If your goal is to build a scalable platform for longterm success, finding the right balance between independence and support can offer freedom for you to focus on identifying opportunities and enhancing operations.

THE PARTNERSHIP DIFFERENCE

The independent sponsor model offers several benefits: entrepreneurial freedom, deal flexibility, and strong economic returns. These advantages have fueled rapid growth, but independence doesn’t have to mean going at these challenges alone. Many independent sponsors have come to recognize that sometimes a strategic partner can amplify their strengths while tempering risks.

Of course, finding the right partner can take time and effort. Not every potential partner you speak to will be aligned with your vision. However, the right partnership can elevate your investment, while also preserving what makes your model as an independent sponsor unique.

DAN LEE

Partner

Garnett Station Partners

lee@garnettstation.com

Dan is a partner at Garnett Station Partners (GSP), a private equity firm that backs driven entrepreneurs with big ambitions. Dan has over 25 years of experience investing in private companies and is an emphatic supporter of entrepreneurs looking to create genuine, customer-centric experiences.

Dime Community Bank: A Strong History and A Bright Future

BY GLEN CARBALLO

DIME PRIVATE & COMMERCIAL BANK

OUR HISTORY

For more than 160 years, Dime Community Bank has been a financial pillar in the communities we serve. Built on perseverance, integrity, customer service, and a commitment to reinvest locally, Dime has helped generations of New Yorkers manage their finances, grow their businesses, and plan for their future. Through two World Wars, the Great Depression, the 2008 financial crisis, and most recently, a global pandemic, Dime has remained stable, strong and deeply rooted in our communities.

That kind of staying power does not happen by accident. Dime has always taken a careful and thoughtful approach to banking. While other

financial institutions may have followed trends or taken unnecessary risks, Dime stayed focused on long-term relationships, trust, and smart decisionmaking. It is that consistent approach that has allowed the bank not just to endure, but to grow throughout its 160-year history.

Dime continues to expand across New York into additional communities. These expansions reflect Dime’s ongoing commitment to serving new communities with the same trusted, relationshipfocused approach that has defined the bank for over 160 years.

Dime’s story is one of strength, service, and unwavering commitment. And it is a story that continues to grow.

“OVERTHEPASTDECADE,OURDEDICATEDTEAM

DIMEPRIVATE&COMMERCIALBANK

AN “OUTSTANDING” COMMITMENT TO COMMUNITY

Throughout our history, Dime has earned and maintained the trust of its clients by offering consistent service, impactful financial solutions, and a genuine commitment to community well-being. That commitment has been formally recognized with an “Outstanding” Community Reinvestment Act (CRA) rating for four consecutive years. This is one of the highest possible distinctions for community banks and reflects Dime’s dedication to meeting the needs of the communities it serves.

Whether through financing local businesses, supporting affordable housing, or investing in community development, Dime continues to take a hands-on approach to reinvestment. Families, individuals, and businesses across Greater Long Island and New York City rely on Dime as a trusted partner, and that trust has grown stronger over time, built upon generations of positive experiences and proven reliability.

PERSONALIZED SERVICE THROUGH A SINGLE POINT OF CONTACT

In addition to traditional branches, Dime has

expanded its reach and coverage with Dime Private and Commercial Bank with teams of highly skilled professionals dedicated to providing exceptional financial services to our valued customers. One of the key differentiators of Dime’s Private and Commercial Banking group is our relationshipdriven model. Each client is supported by a dedicated banking team who understands their full financial picture and serves as a single point of contact. This client-centric approach ensures a high level of responsiveness, expertise, and personalized attention across every stage of the banking relationship.

As a trusted partner, Dime delivers tailored financial solutions that help clients navigate complex needs and plan for long-term success. Clients can count on the dedicated support of a banker who knows their business and is committed to helping them succeed.

EXPERTISE, EFFICIENCY, AND EXECUTION

At the core of Dime’s Private and Commercial Banking philosophy is a focus on delivering value through expertise, efficiency, and execution. These three pillars guide our approach and reflect the high standard of service we provide to every client.

Expertise means our bankers bring decades of combined experience to the table, supporting clients with specialized and often complex banking needs. Whether navigating commercial lending, treasury management services, or strategic deposit management, our team has the knowledge and insight to provide sound guidance at every step.

Efficiency is another critical benefit of working with a dedicated finance team. Financial operations require attention to detail and adherence to strict deadlines, such as tax filings, audits, and budget reviews. A dedicated team streamlines these processes by establishing workflows and leveraging familiarity with the organization’s systems. For example, a team that regularly handles payroll or accounts receivable can reduce errors and processing times compared to external resources. Moreover, dedicated teams can implement advanced tools, such as enterprise resource planning (ERP) software or data analytics platforms, to automate repetitive tasks and enhance accuracy. This efficiency translates into cost savings and allows the organization to allocate resources to strategic initiatives rather than administrative burdens. In contrast, relying on non-specialized staff or third-party providers often leads to delays, miscommunication, or costly mistakes.

Collaboration is a cornerstone of a dedicated finance team’s success, fostering synergy that drives innovation and problem-solving. Unlike fragmented or outsourced financial functions, a dedicated team operates as a cohesive unit, with members sharing a common goal and open lines of communication. Regular meetings, brainstorming sessions, and cross-functional collaboration enable the team to align financial strategies with the

organization’s broader objectives. For instance, a finance team working closely with marketing might develop a budget that optimizes advertising spend while ensuring profitability. This collaborative environment also encourages knowledge sharing, where junior members learn from seasoned professionals, enhancing the team’s overall capability. Additionally, a dedicated team builds trust and accountability, as members are invested in the organization’s long-term success. This unity contrasts with external consultants, who may prioritize short-term deliverables over sustained growth.

A dedicated team’s vigilance safeguards the organization’s financial health and enhances its resilience. Beyond these operational benefits, a dedicated finance team contributes to strategic growth by aligning financial planning with longterm objectives. Unlike temporary or outsourced solutions, a dedicated team invests time in understanding the organization’s vision, whether it’s expanding into new markets, launching innovative products, or improving sustainability. This alignment enables the team to develop financial models that support ambitious goals while maintaining fiscal discipline. For instance, a dedicated team might secure favorable financing terms for a capital-intensive project or identify cost-saving opportunities to fund research and development. This strategic foresight is particularly valuable in competitive industries, where agility and informed decision-making provide a competitive edge.

Execution reflects our ability to deeply understand each client’s goals, challenges, and industry landscape. With this insight, we help develop

and carry out comprehensive banking strategies designed for long-term success.

LOOKING AHEAD

Today, Dime is proud to be recognized as the leading commercial community bank with the number one deposit market share among community banks on Greater Long Island . With 62 locations across New York from Montauk to Manhattan, Staten Island, and Westchester County, and a team of experienced bankers who live and work in the same communities they serve, Dime continues to help people and businesses thrive through reliable solutions and real relationships.

In conclusion, working with a dedicated finance

team offers transformative advantages that enhance an organization’s financial performance and strategic positioning. The team’s specialized expertise ensures high-quality decision-making, while its efficiency streamlines operations and reduces costs. Collaboration fosters innovation and alignment with organizational goals, and proactive risk management safeguards against uncertainties. Together, these benefits enable a dedicated finance team to serve as a catalyst for growth, driving both short-term stability and long-term success. In an era where financial complexity is ever-increasing, organizations that invest in dedicated teams are better equipped to navigate challenges and seize opportunities.

“OURGOALISTOMAKEEVERYCLIENT FEELASTHOUGHTHEYAREOURONLY CLIENT.”-MARTINBALL,HEADOF

GLEN CARBALLO Director of

National Deposits

Dime Private & Commercial Bank

As a seasoned commercial banking professional at Dime Private & Commercial Banking, Glen Carballo specializes in crafting tailored financial solutions for emerging alternative investment fund managers and family office investors. With 20 years of experience, Glen deeply understands the challenges and opportunities faced by ambitious hedge fund and private markets managers. Guided by his “3 E’s” philosophy—Expertise, Efficiency, and Execution— he delivers best-in-class service, acting as a true partner to his clients.

CELEBRATES 160 YEARS

Dime Community Bank has a long history of financial and community strength. Since opening its doors in 1864, Dime has endured the Great Depression, two world wars, the financial crisis of 2008 and a global pandemic. At each point, Dime has leaned into the communities they serve to support their needs and provide a safe harbor during times of change. Today, on the occasion of its 160th year in business, Dime is committed to becoming the premier community commercial bank from Montauk to Manhattan by partnering and building trusted relationships and providing solutions for financial success.

1864

Dime Savings Bank of Williamsburgh founded in Brooklyn, New York

1865

1952

Dime offers FHA, VA mortgages as per the GI Bill to returning service men

1940

Dime adds women as bank officers

William W. Armfield President

Raymond Bertrand Vice President William Grandy Secretary

Dime issues first home mortgage

1869

Dime moves from basement of Williamsburgh City Bank to Broadway

1873

Dime moves to 52 Broadway and Wythe Avenue

1874

Dime deposits doubled in its first decade. Accounts grew 8X.

1883

Brooklyn Bridge opens in May

1889

Dime celebrates 25 years

Savings passbook 1890, depicting Dime’s second main office on Broadway and Wythe Avenue

1929

Wall Street crash spurs Great Depression. Dime joins FDIC.

1923

Dime expands bank building at Havemeyer and South Fifth streets

1914

Dime celebrates 50 years

1908

Dime moves to new headquarters at Havemeyer and South Fifth streets

1903

Williamsburg Bridge opens in December

YEARS OF COMMUNIT Y BANKING

1961

Dime’s first Long Island branch opens in Merrick

1964

Dime celebrates 100 years

1975

New York City fiscal crisis.

Dime remains independent

1985

Amid bank failures, Dime reports profits

1996

Dime goes public and acquires Conestoga Bancorp, Inc. and its subsidiary, Pioneer Bank

1998

2018

Dime’s Havemeyer Street headquarters declared a New York City landmark

2017

Dime moves headquarters to Cadman Plaza, Brooklyn

Dime shifts focus to commercial and business banking. Approved as Small Business Administration (SBA) lender

2021

Dime merges with BNB Bank, now having 60 locations in the New York region

2021

Dime provides $2 billion of Paycheck Protection Program loans to customers and businesses during COVID-19 pandemic

2022

Dime moves headquarters to Hauppauge

Dime acquires Financial Bancorp, Inc.

2023

Dime ranks #1 by deposit market share on greater Long Island amongst community banks*

Dime launches online account opening platform to expand its digital offerings

2024

2011

Dime opens branches in Brooklyn and Queens 2014

Dime opens branch in Valley Stream 2002

Dime celebrates 150 years

Dime opens a branch on Fourth Avenue

2010

Dime opens branches in Garden City and Cedarhurst

2008

Financial crisis. Dime opens branches in Brooklyn Heights and Boro Park

Dime expands into Westchester County with a new location

Dime opens its 63rd location in Williamsburg, blocks from the original building

Dime receives “Outstanding” Community Reinvestment Act rating

For more information on Dime Community Bank, please visit

Rollover Equity in Independent Sponsor Transactions

BY PAUL MARINO, JONATHAN BERNSTEIN, SETH LEBOWITZ & ROBERT CROMWELL

SADIS & GOLDBERG

When an independent sponsor identifies a target, there are a number of considerations that come into play before executing the letter of intent. The independent sponsor will need to carefully consider the acquisition vehicle and overall acquisition structure. A key consideration in finalizing an acquisition structure is whether the independent sponsor wants to have the seller roll

over equity in the deal and maintain a (direct or indirect) ownership position in the target after the closing, and if so will the seller have an active role post-closing or simply have an economic interest.

If incorporating rollover equity into your letter of intent, certain decisions are necessary in order to maximize the benefits to the independent sponsor and the seller.

STRUCTURING OF AN INDEPENDENT SPONSOR TRANSACTION.

The two most common acquisition structures for an independent sponsor to consider in connection with an acquisition transaction (a “Transaction”) are a limited liability company or a limited partnership (“Holdco”). Holdco is the entity

into which the capital providers would receive equity and, regardless of the preferred vehicle, it would typically be treated for tax purposes as a partnership. Holdco would then create either a corporation or a limited liability company as a wholly owned special purpose vehicle to be the acquiror (“Acquisition Co”), and Acquisition Co would take on any debt from a lender to (at least partially) finance the Transaction.

(either a limited liability company or partnership, each taxed as a partnership)

The independent sponsor will often want the seller in the Transaction to accept some portion of the purchase price as rollover equity, typically in Holdco for a variety of reasons, including:

• Bridging the Gap on the Purchase Price. If an independent sponsor is having trouble raising the necessary capital to complete the Transaction, either debt or direct investment, or there is otherwise a disconnect in the valuation of the target between the seller and the independent sponsor, the independent sponsor may require the seller to roll over a portion of the purchase price into ownership in Holdco. This allows the independent sponsor to bring less cash to the closing, and also keeps the seller aligned with the independent sponsor giving them “skin in the game”.

• Retention of Key Employees or Founders. Independent sponsors will often include rollover equity as part of the consideration for a Transaction to keep value creators of the target involved after the closing of the Transaction, which can be beneficial for the independent sponsor based on the target and the role of those value creators. The same goal can also sometimes be achieved by deferring a portion of the purchase price (especially if some or all of the deferred portion is made contingent on future performance of the acquired business), but as discussed in a prior article¹, that generates its own additional considerations and complications.

Holdco

Target

Lender Acquisition Co.

Independent Sponsor Investors

HOW ROLLOVER EQUITY AFFECTS A TRANSACTION.

CONSIDERATIONS FOR STRUCTURING A TRANSACTION TO ACHIEVE A TAX DEFERRAL FOR SELLER PARTICIPATING IN ROLLOVER

When including an “equity rollover” in an offer, independent sponsors do not always make it clear that the proposed equity rollover is intended to facilitate a tax deferral for the seller. While tax deferral could be reasonably inferred from the word “rollover”, because absent tax deferral, what is being labeled as an “equity rollover” is more accurately described as an “equity reinvestment” or a “reinvestment of part of the post-tax cash proceeds of the sale,” it is best practice to spell out the intended possibility for tax deferral in the letter of intent.

Whether a seller is interested in the potential tax deferral associated with a rollover in a given Transaction, and how much value the seller will attach to that deferral, will vary from seller to seller. For example, a seller that owns stock eligible for the gain exclusion afforded in certain circumstances by the Internal Revenue Code to sellers of “qualified small business stock,” or a seller that upon a cash sale would recognize a loss for tax purposes, generally would assign less (or no) value to a rollover transaction’s tax-deferred nature.

At the time of negotiating the letter of intent, the available information may be insufficient for an independent sponsor to commit to a taxdeferred equity rollover when the letter of intent is signed, even if they have already commenced due diligence. In that event, appropriate wording in the letter of intent may suffice to highlight that

partial tax deferral is a point to be resolved early in the ensuing due diligence, and documentation processes.

In practice, this depends partly on the process and dynamics in which the letter of intent is being negotiated and partly on the specifics of the purchaser and target and the extent of information already made available regarding both parties. As a result, deciding how to structure the Transaction in the letter of intent and whether to save that point for after the letter of intent has been signed depends on the specifics of each negotiation, which can be aided by experienced counsel who can help anticipate these concerns and advise on structing of the Transaction. With that said, if it is not included in the letter of intent or otherwise some other approach is not agreed upon by the parties to be addressed in the future, there is a risk that the parties will not be on the same page for what could be a material point in the overall negotiations.

COST BASIS VS. CARRYOVER BASIS FOR ACQUIRED ASSETS

An independent sponsor (as purchaser) typically wants to structure the Transaction to result in the acquired target assets having a post-Transaction tax basis that reflects the full value of the consideration paid for the acquisition of the target – the cost basis – and therefore a preferred approach is to structure the Transaction as an acquisition of the target’s assets, as distinguished from, say, the acquisition of the stock of a target organized as a corporation. Assets acquired in exchange for cash generally take on an initial post-acquisition tax basis equal to the amount of cash consideration used to acquire those assets.

A corollary to the tax-deferred nature of a properly structured equity rollover is that the assets deemed to be acquired in exchange for rollover equity (with allocation of consideration among the acquired assets generally based on fair market values at the time of the Transaction) will have an initial postacquisition tax basis equal to the rollover seller’s pre-acquisition basis in those assets – the carryover basis – which typically is lower than those assets’ values. Therefore, Acquisition Co typically would have a lower tax basis in the assets deemed to have been acquired in exchange for rollover equity than for those acquired for cash; a “basis step-up” would be available to the acquirer with respect to the portion of the target’s assets acquired for cash, but not for the portion acquired for rollover equity. A higher tax basis can mean greater cost recovery deductions and therefore lower taxable income for the acquired business post-Transaction, which can translate into real economic savings for the acquirer in the future.

Certain acquisitions of equity interests may be treated for tax purposes as an acquisition of assets, and the structure of the Transaction for state law purposes is not necessarily required to match the structure of the Transaction for tax purposes.

• If the target is a limited liability company taxed as a partnership, and Acquisition Co. is acquiring 100% of the target’s stock, then generally it would be treated for tax purposes as having acquired all of the target’s assets, with a basis step-up for the assets acquired in exchange for cash (excluding the rollover equity).

• If the target is a corporation, and Acquisition Co. is acquiring 100% of the target’s stock, then

with certain exceptions available in specific situations and/or with additional structuring, the post-Transaction assets of the target would retain their same, usually lower, tax basis.

Three factors to consider in determining whether to acquire assets directly or indirectly, or instead to acquire interests in the target, are:

i. the extent to which an actual direct asset acquisition may initially impact the target’s business operations,

ii. the impact on required counterparty consents with respect to material contracts, which may, at a minimum, delay a closing, and

iii. the risk level of existing or possible claims affecting the business being acquired.

If these factors are not clearly assessable at the letter of intent stage, the parties may assess these factors and make a decision on this structuring point during the commencement (or completion) of the due diligence process.

When an independent sponsor structures its offer in connection with a Transaction, it is important to consider whether it wants to include rollover equity in its offer, as well as the impact that rollover equity specifically, and the acquisition structure generally, has on the desired tax treatment for both purchaser and seller. If you have any questions about structuring rollover equity, please contact Paul Marino (pmarino@sadis.com), Jonathan Bernstein (jbernstein@sadis.com), Robert Cromwell (rcromwell@sadis.com) or Seth Lebowitz (slebowitz@sadis.com).

1https://www.sadis.com/insights/the-challenges-brought-by-a-deferred-purchaseprice

Supplemental Article: Rollover Equity in Certain Transaction Structures

This article should be read in conjunction with the main article “Rollover Equity in Independent Sponsor Transactions”. While the main article covers rollover equity considerations with a focus on typical independent sponsor transaction scenarios, this article discusses the topic with less of an independent sponsor focus and covers some specific transaction scenarios in which equity rollover may play a part. The scenarios discussed in this article may be of interest to buyers and sellers generally, including independent sponsors.

PURCHASE OF BUSINESS OF A CORPORATION OR LLC TAXED AS AN S CORP.

A purchase transaction in which the target company is an S Corp (an entity taxed under Subchapter S of the Internal Revenue Code) is frequently structured as a purchase from the S Corp of all the interests in an LLC that is wholly owned by the S Corp. Such a purchase is usually carried out in such a manner so that the purchase is treated for tax purposes as a purchase of assets from the seller S Corp. Certain

steps, beyond the scope of this discussion, would typically be carried out by the owners of the target S Corp shortly before the closing of the purchase transaction to result in the S Corp’s business assets being owned by the wholly owned LLC subsidiary.

In a case in which no rollover is desired, the purchaser may purchase 100% of the LLC interests from the S Corp for cash. In a case in which a partial rollover by shareholders of the S Corp is desired, however, each of the purchaser and the S Corp could contribute their LLC interests (freshly purchased in the case of the purchaser) to a newly created acquisition entity with each contributor receiving LLC interests in proportion to the value of LLC interests that they contributed. Such a transaction can, if the necessary conditions are satisfied, be treated for the contributing S Corp as a tax-deferred exchange of LLC interests for partnership interests (in the case of an acquisition entity treated for tax purposes as a partnership) under Section 721 of the Internal Revenue Code (“IRC”), or for shares of common stock (in the case of an acquisition entity treated for tax purposes as a corporation) under Section 351 of the IRC.

Given the restrictions applicable to S Corps and their shareholders, the above example assumes that each shareholder of the selling S Corp receives an identical ratio of cash and partnership interests or stock, as applicable. A sale that involves multiple owners that are not all cashing out and rolling over in the same proportion introduces the need for the selling owners to engage in additional preand/or post-sale transactions in order to adjust their ownership interests. The approach taken has certain tax consequences impacting either the rollover sellers, the cash sellers, or both, and so the seller group will wish to model out the impact when deciding which approach to take.

SALE OF LLC INTERESTS

TAXED AS A PARTNERSHIP; ACQUIRER IS TAXED

AS A C CORP.

C Corp refers to an entity that is taxed under Subchapter C of the IRC. While acquirer C Corp structures are not frequently encountered in roll-up scenarios, they may more frequently be encountered in connection with an ultimate exit transaction involving a sale to a large platform that

may have multiple business lines. In this type of transaction, equity rollovers may play a part, for one or more of the same reasons discussed in the main article (for example, to bridge a gap in the purchase price and/or related to retaining key employees or founders). Differing treatment of capital partners and key persons will complicate negotiations, but these complications frequently can be surmounted.

In the C Corp acquirer scenario, perhaps the simplest approach to achieve a tax-deferred rollover is for the acquirer to form a new C Corp to which the acquirer will contribute the portion of the target LLC interests that the acquirer has purchased for cash and the rollover participants will contribute the rollover portion of the target LLC interests. Because the acquirer and the rollover participants together own and control 100% of the newly formed C Corp, this transaction can satisfy the requirements of Section 351 of the IRC for a nontaxable transaction. However, if the acquirer has pre-existing business lines held in an existing holding company structure, and the goal is for the rollover equity to represent an equity interest in the entire enterprise, this approach, on its own,

likely will not achieve that goal.

Another approach that may achieve the goal stated above involves contribution of the rollover interests to a newly formed direct subsidiary holding company of the acquirer C Corp in a transaction that, similar to the prior scenario, can satisfy Section 351 of the IRC because the newly formed direct subsidiary is owned and controlled 100% by (i) the acquirer C Corp and (ii) the equity rollover participants. (Or, the newly formed direct subsidiary may be an LLC, and Section 721 of the IRC can be satisfied.) Contractual arrangements then may be implemented whereby the equity rollover participants will have essentially the same contractual rights and obligations as minority owners as if they held shares in the acquirer C Corp instead of shares of the newly formed direct subsidiary holding company.

The foregoing approach still may be considered suboptimal by an acquirer C Corp, as it complicates the C Corp acquirer structure as compared to having the rollover shares held by a holding company that sits above the acquirer C Corp. For this reason, another approach that may be considered involves creating an LLC holding company that will be taxed as a partnership, which will be a direct shareholder of the acquirer C Corp. In this approach, the existing shareholders of the acquirer C Corp contribute their shares to the new LLC holding company, and the rollover participants contribute the rollover portion of the target LLC interests to the new LLC holding company, which then re-contributes the contributed target LLC interests down to the C Corp acquirer. Provided that the applicable conditions are satisfied, the contributions to the new LLC holding company by the existing shareholders and

the rollover participants generally will qualify for tax deferral under Section 721 of the IRC.

In sum, potential alternative scenarios abound here, and the best structure will depend in part on factors that include the acquirer C Corp’s existing structure and business lines, plus other considerations applicable to the acquirer C Corp.

SALE OF CORPORATE OR LLC

INTERESTS TAXED AS A C CORP; ACQUIRER IS TAXED AS A C CORP.

A corporation is a legal entity, formed under state law, for which C Corp tax status is the default tax status. While it is relatively rare for a limited liability company to elect to be taxed as a C Corp, it does happen. For example, a private company founder may choose for his company to elect C Corp status, while also choosing the simplified management structure and the potential to broadly disclaim fiduciary duties that is afforded with status under state law as a limited liability company.

It also may be possible to mostly pre-bake an option to subsequently convert the limited liability company to a state law corporation—we have structured that option for Delaware LLC’s. Founders also sometimes choose to commence operations as a partnership for tax purposes, in order to pass through losses during initial operations, and then elect C Corp status once the business becomes profitable.

In cases in which a transaction under Section 721 or Section 351 of the IRC is not available, whether for reasons originating in the tax law, in corporate law, or in business considerations, a C Corp equity

rollover may sometimes be effected using the tax-free reorganization provisions under Section 368 of the IRC. The requirements for a tax-free reorganization under Section 368 generally are more restrictive than those for transactions under Sections 721 or 351. One of the more restrictive aspects of these types of reorganizations is that the equity rollover portion of the transaction needs to represent a larger part of the overall consideration in the transaction (with the amount depending in part on what type of reorganization is undertaken) than would be required in the case of a transfer under Sections 721 or 351 of the IRC.

Section 368 tax-free reorganization transactions often involve a merger (which may be a forward or reverse triangular merger), in which the target company merges into a newly formed subsidiary of the acquirer (or vice versa), and also may involve a merger of the target company directly into the acquirer, in each case, in exchange (in whole or, subject to certain limits, in part) for acquirer stock. Other structures also are possible. Taxfree reorganization treatment can apply whether the participants are organized under state law as corporations or as limited liability companies, so long as the parties to the reorganization are treated for tax purposes as C Corps.

In an effort to cover equity rollover scenarios more broadly, this supplemental article has supplemented the main article “Rollover Equity in Independent Sponsor Transactions” by discussing some additional transaction scenarios that are less frequently encountered by independent sponsors and may also be of interest to buyers and sellers generally. If you have questions about structuring rollover equity in any context, please contact us.

PAUL MARINO Partner

Sadis & Goldberg

pmarino@sadis.com

Paul Marino is a partner in the Financial Services and Corporate Groups. Paul focuses his practice in matters concerning financial services, corporate law and corporate finance. Paul provides counsel in the areas of private equity funds and mergers and acquisitions for private equity firms and public and private companies and private equity fund and hedge fund formation.

JONATHAN BERNSTEIN Partner

Sadis & Goldberg jbernstein@sadis.com

Jonathan Bernstein is a Partner in the Financial Services and Corporate groups. Jonathan focuses his practice in matters concerning mergers & acquisitions, outside general counsel, and corporate law. He serves as a trusted advisor to private equity sponsors, family offices and middle-market and family-owned businesses across industries. Jonathan has experience representing clients across the fashion, apparel, distribution, consumer products, media, manufacturing, healthcare, technology and hospitality industries, among others. He assists our clients in connection with acquisitions, divestures, sales and financing. Our clients benefit from Mr. Bernstein’s knowledge of their businesses to execute transactions, along with his extensive experience executing complex transactions. As an outgrowth of the close relationships he develops with our clients, Jonathan routinely works with our clients to craft business strategies which meet their business priorities while managing risk. He also serves as an outside general counsel, advising on the full gamut of day-to-day legal issues. He takes a practical approach to deal-making that puts a premium on big-picture issues that matter to his clients.

SETH LEBOWITZ Partner

Sadis & Goldberg slebowitz@sadis.com

Seth Lebowitz is a partner in the firm’s Tax group. Seth advises clients on the taxefficient planning and execution of a broad range of transactions, with a particular focus on the formation, operation and investing activities of private equity and hedge funds. Seth has experience with:

• Domestic and international tax issues relating to fund structuring

• Joint ventures and partnerships

• Corporate and real estate investing

• Lending Securities trading

• Distressed investing

• Financial Products

ROBERT CROMWELL

Partner

Sadis & Goldberg rcromwell@sadis.com

Robert Cromwell is a partner in the firm’s Financial Services and Corporate groups. Robert’s practice is focused on purchases, sales and recapitalizations of private companies, venture capital start-ups and related financings, private investments funds, SPVs and joint ventures, and representing founders, managers and boards of operating businesses and investment funds.

Robert’s transactional experience includes: corporate and LLC startups, restructurings and exits; registered and private securities offerings; secured loan facilities; formation and investment activities of venture capital funds, private equity funds and hedge funds; preparation of corporate and partnership governing documents, registration statements and periodic financial reports; structuring equity incentive plans, bonus plans and employment agreements; counseling boards of directors and committees of operating businesses and investment funds.

Private Equity’s Untapped Potential: Prioritizing Human Capital for Value Creation

BY TOM BRADBURY BROAD-GAUGE

WHAT THE ARTICLE IS ABOUT:

The article explores how private equity (PE) firms can unlock untapped value in their portfolio companies by prioritizing human capital as a strategic investment rather than a cost center. It emphasizes the importance of leveraging workforce data to drive operational improvements, enhance financial performance, and prepare for successful exits.

THESIS:

Human capital is the most significant yet underutilized asset in PE portfolios. By adopting data-driven approaches to workforce management, PE firms can transform human capital into a

competitive advantage, fostering sustainable value creation and risk mitigation.

CONCLUSION:

• PE firms must shift from traditional cost-cutting strategies to proactive investments in people, supported by actionable workforce data.

• Standardizing human capital data across portfolios enables better decision-making, enhances leadership effectiveness, and protects incremental gains during the hold period.

• Firms that embrace this approach will not only drive growth and productivity but also reassure investors of their ability to navigate workforce complexities and deliver long-term value.

INTRODUCTION

Traditionally, there has always been criticism of private equity (PE) for overlooking “the intangibles” of a business—focusing instead on relentless bottom-line growth through costcutting and efficiency exercises. While these tactics understandably aim to optimize value during the hold period, they can leave behind deeper opportunities to improve asset performance.

Recent trends, however, suggest that PE firms are starting to make strides towards understanding those human capital needs within their portfolio. It’s becoming increasingly common for general partners (GPs) to bring human capital experts onto their operational teams. For middle-market portfolio companies—businesses large enough to face complex people challenges but often lack the expertise or resources to address them—this shift can bring beneficial and welcoming resources. Human capital experts help find talent, implement effective benefit solutions, and document succession plans to prepare for future diligence.

Yet, despite these efforts, untapped areas for value remain.

WHAT ARE GENERAL PARTNERS STILL MISSING?

Two critical issues persist that continue to hamper the full potential of human capital in PE portfolios:

1. Undervaluing the Workforce as an Investment

Every asset in a PE portfolio is anchored by the performance and stability of its workforce. In most industries the workforce represents the single

largest investment of an organization. In others, like manufacturing, it is the second largest behind physical capital. Regardless, the central premise remains the same: the workforce is too often overlooked as a core driver of value and deserves much more attention and strategic focus as a financial lever.

Too long has human capital been relegated to a secondary priority—a cost center to be managed rather than an engine of growth potential. Recognizing its true worth implies a substantial shift in mindset: treating the workforce as a strategic investment rather than overhead.

2.

Over-Delegation and Operational Myopia in HR

While many PE firms have brought on human capital experts, often the day-to-day calibration of the workforce is still over-delegated to middle market HR leaders. These HR professionals frequently battle resource constraints, a shortage of specialized expertise, insufficient advanced tools (the kind that can generate real-time, actionable data), and various internal biases. The consequence? The single largest investment of a business —the workforce—is not getting the detailed, data-driven and strategic attention that it deserves to maximize performance.

The challenge for GPs, then, lies in integrating across the portfolio—a move from mere delegation to enabling a sophisticated data-driven approach to human capital that tracks performance, drives accountability, and supports continuous improvement.

UNTAPPED POTENTIAL

Mining Rich Workforce Data for Value Creation

In conventional private equity operations, investment professionals routinely rely on granular financial data to assess performance on a quarterly basis. However, the rich reservoir of workforce data remains vastly underutilized. This data can often reveal a host of insights, including:

• Cost Avoidance Strategies: Identifying where investments in culture and leadership can preemptively manage risks such as attrition and production quality issues.

• Targeted Investment Opportunities: Pinpointing areas where strategic investments in training, technology, or talent acquisition can drive operational excellence.

• Leadership and Managerial Impact: Understanding how effective management practices contribute to overall productivity and financial performance.

• Productivity Enhancement: Uncovering elements such as process ineffectiveness and technology shortfalls which, if improved, can boost bottom-line performance.

• Workforce Stability: Diagnosing and then addressing challenges related to employee turnover, engagement, and overall morale.

tely, advanced data analytics provide an altogether new lens through which to view and optimize the workforce—collectively the largest and often most valuable asset across a portfolio.

PRACTICAL, COMPLIANCELIKE WORKFORCE DATA

To fully harness the potential of workforce data, here’s what matters:

1. Quantifying “Squishy” Factors Like Culture

Traditionally, culture has been viewed as something nebulous that can’t be measured. For some leaders, it is likened to holding sand in your hand—impossible to capture. Others dismiss culture outright, asserting that hitting the numbers is all that matters. Yet, at its very essence, culture is defined as the shared values and appropriate behaviors that permeate an organization.

By focusing on organizational effectiveness—i.e. in areas such as communication, leadership, technology, or sales enablement—the once “squishy” concept of culture can be converted into measurable metrics. Through effectiveness we find the measurable proxy for culture. Undeniably, ineffectiveness appears due to missing or lacking shared values and appropriate behaviors. The simple and elegant nature of this approach is that, once quantified, culture can then be directly correlated to the company’s financial performance.

2. Linking Culture to Financial Performance

Once we surface the tangible elements from what was once perceived as intangible, we can begin to relate those numbers to key financial indicators: EBITDA, net income, revenue (or profit) per employee, and even more sophisticated metrics such as Human Capital ROI (HCROI) and cost-ofattrition. This integration of data produces a rich, multidimensional analysis of an asset’s workforce performance and value. It paves the way for informed decisions that extend beyond costcutting towards proactive investments in people and processes.

IDENTIFYING, PRIORITIZING, AND ADDRESSING WORKFORCE ISSUES

The correlations between human capital data and financial metrics facilitate trend-analysis across key performance indicators. Armed with the right data, GPs can partner with and support Operating Executives to confidently drive measurable value through a newfound ability to:

• Detect Imbalances: Identify areas where the workforce is underperforming or where engagement levels are trending downward.

• Prioritize Investments: Allocate resources effectively to areas where culture and human capital improvements will yield significant returns.

• Implement Corrective Measures: Design targeted, practical strategies to address issues and drive improvements, all the while linking these actions to quantifiable financial benefits so that success factors can be surfaced.

INTERNAL DATA VS. EXTERNAL DATA

Stress Test to Confirm Gains and Understand Exit Diligence

Much of this article is focused on leveraging internal workforce data to synthesize and leverage during continuous improvement throughout the hold period. Along with monitoring the financial impact, GPs can orient themselves with the perspective of a potential suitor during an exit. Leveraging publicly available data that is readily available to any potential acquirer during diligence should be an annual or semi-annual exercise that will let GPs and Operating Executives know if their internal

efforts to protect and grow value are effective. If so, this low-cost yet highly effective exercise will have an extreme payoff by staying ahead of any red flags that potential suitors will raise that either drive them away or stay in the hunt for a discount.

UNIFORM HUMAN CAPITAL DATA ACROSS A PORTFOLIO

Standardized Data for Richer Insights

A major challenge in managing a diverse portfolio of Middle Market assets is the lack of standardized data. Middle Market HR professionals leverage systems and data taxonomies from their own unique career experience and perspectives. That’s a very diverse data-set for GPs to understand, navigate and deploy. The potential of uniform, relatable and comparable data across funds, industries, and assets is enormous. With a harmonized data approach, GPs can develop an overarching understanding of workforce trends and identify the best practices that work across different contexts. This not only yields economies of scale in workforce strategies but also enhances decision-making and lessons learned as it relates to value growth and protection during the hold period and realized through an exit’s due diligence.

TRANSLATING DATA INTO SUCCESS FOR GPS

Key takeaways through several actionable advantages:

Armed with actionable, real-time workforce data, general partners gain access to a suite of new levers that can dramatically transform their portfolio companies:

• Value Creation and Protection: Leveraging

data-led insights, GPs can drive initiatives that protect their value creation efforts during periods of change. A deeper insight into workforce dynamics not only safeguards investments but also uncovers latent opportunities for improvement.

• The HCROI Metric: Human Capital ROI measures the efficiency of every dollar invested in the workforce. By removing one-time transactions from the equation, HCROI offers a clear view of operational trends, enabling GPs to treat the workforce as the critical investment it is.

• Exit Diligence Excellence: Prior to executing an exit, thorough diligence of workforce data can validate the timing of the sale while simultaneously flagging potential risks that may otherwise lead to valuation discounts. Even a seemingly small “haircut” on a final deal can be mitigated through lower-cost and proactive data analysis.

• Improved Leadership Decision-Making: When it comes to filling key roles—be it CEOs, tech leads, or operational managers—workforce data can point the way to candidates who have successfully navigated similar people challenges. This ensures that leadership choices are backed by empirical evidence of past success.

• Cost-Avoidance Campaigns: High attrition or inefficiencies can be directly linked to workforce imbalances. By addressing these issues immediately, companies can cut down on wasteful expenses, thereby bolstering productivity and overall financial performance.

• Sales Acceleration: Targeted workforce data can deliver transformative results for sales acceleration. By aligning human capital data with sales resources and KPIs, GPs and Operating Executives can unlock sales team effectiveness,

leveraging technology for sales insights and aligning workforce productivity with revenue goals.

• Protection of Incremental Gains: The routine monitoring of key workforce metrics ensures that improvements made over the hold period are preserved, even in the face of economic or market uncertainty. This continuous improvement loop becomes a cornerstone of sustained growth.

• Meeting LP Expectations: As institutional investors increasingly value the human capital data disclosures in their US-based publicly traded investments, GPs must meet these expectations. Meaningful workforce data demonstrates a proactive approach to risk management and value creation.

A NEW LEVEL OF PARTNERSHIP FOR GPS AND OPERATING EXECUTIVES

Today’s business landscape is defined by rapid shifts—whether it’s navigating the challenges of remote work, understanding the rubric of AI’s impact on each role/company/industry, or navigating the variety of needs across a multigenerational workforce. As mentioned earlier in this article, these are the same sophisticated complexities that global enterprises face and yet the Middle Market portfolio companies across the PE landscape simply aren’t configured or funded to tackle them effectively.

For private equity GPs, this era presents a unique opportunity to partner closely with Operating Executives, armed with the data that matters to protect and drive value through their biggest

investment – each portfolio company’s workforce. This elevated collaboration – initiated and supported by GPs – transforms human capital into a central pillar of competitive advantage within any given market and with investors.

WHY HUMAN CAPITAL MATTERS MORE THAN EVER FOR PE

People challenges have become more complex than financial ones, and GPs can no longer afford to overlook the workforce - the critical asset their Middle Market portfolios depend on. By leveraging the right human capital data, PE firms and their operating teams gain essential tools to drive growth, safeguard value, and navigate today’s business complexities. Prioritizing workforce insights transforms human capital from a cost center into a powerful competitive advantage for sustainable value creation and risk mitigation.

Relying solely on each portfolio company’s internal teams is no longer effective. Instead, holistic strategies grounded in quantified human capital metrics - correlated directly to financial outcomesenable more sophisticated, practical management approaches that improve performance and increase value. Uniform human capital data across

assets provides deeper insights into leadership gaps, training needs, and operational inefficiencies, turning the workforce into a dynamic driver of growth and productivity.Armed with the right talent, technology, and measurement, PE firms can move beyond reactive cost-cutting to proactive value creation. This shift not only boosts engagement and revenue growth but also reassures investors that the portfolio is positioned for sustained success. Ultimately, GPs who embrace this evolution will better navigate workforce challenges, fuel longterm growth, and create enduring value across their portfolio companies.

Broad-Gauge provides workforce intelligence to Middle Market and Small Caps leadership teams and to Private Equity firms for uniform data across portfolio companies. By specializing in the analysis of “internal” intelligence proprietary to each entity in conjunction with “external” intelligence, BroadGauge leverages both the internal and external intelligence factors needed to identify both micro and macro workforce trends that inform internal actions & investments to strengthen workforce stability, maximize ROI as well as monitor external optics for validation of due diligence ahead of an eventual exit. Learn more at broad-gauge.io.

TOM BRADBURY Founder and CEO

Broad-Gauge

Broad-Gauge specializes in providing metrics to Middle Market leaders and Private Equity stakeholders that quantify organizational culture and effectiveness. When implemented, these metrics provide actionable insights that impact an organization’s financial performance typically with an initial payback in less than 1 year.

Investing with Intent: Keith McCullough’s Framework for Navigating the Market with Confidence

BY KEITH MCCULLOUGH HEDGEYE

INTRODUCTION: A BETTER WAY TO APPROACH THE MARKET

There’s no shortage of investing advice out there. From financial television to social media feeds, it can feel like everyone has an opinion about what to buy, what to sell, and what’s coming next.

But with so much noise, it’s difficult for individual investors to know which signals to trust — or how to develop a consistent, long-term strategy of their own. That’s where Keith McCullough’s new eBook Master The Market stands out. (You can download it free at www.hedgeye.com/book.)

Rather than promoting hot stock tips or sweeping predictions, McCullough — a former hedge fund manager and the Founder & CEO of Hedgeye Risk Management — offers something more valuable: a repeatable, risk-focused approach for managing your money through every phase of the economic cycle. It’s a framework grounded in data, shaped by experience, and built to help investors think clearly, act decisively, and stay resilient no matter what the market throws their way.

This essay distills the most compelling ideas from McCullough’s book — not just as an investment strategy, but as a mindset for navigating uncertainty with clarity and purpose.

PART 1: FROM THUNDER BAY TO THE FRONT LINES OF FINANCE

Keith McCullough’s path to Wall Street wasn’t a straight line.

He grew up in Thunder Bay, Ontario, a blue-collar town where hard work was a way of life. He brought that same drive to Yale, where he captained the hockey team before beginning his career in finance. Over the next decade, McCullough worked at top-tier hedge funds like Dawson-Herman and Magnetar Capital, and even started his own firm, Falconhenge Partners.

By 2007, he was a managing director at Carlyle-Blue Wave, managing risk in the lead-up to the global financial crisis. That year, he was fired for being too early in calling a market crash. Five days later, his son was born — and everything changed.

Rather than go back to the traditional world of asset management, McCullough started Hedgeye. His goal was simple: build an independent, transparent,

and conflict-free research firm that would help both professional and individual investors make smarter decisions.

PART 2: WHY PREDICTION FAILS AND PROCESS WINS

Markets are complex, constantly evolving systems. Yet many investors — and even large institutions — operate as if they can consistently predict where things are headed next.

McCullough takes a different approach. Rather than relying on subjective forecasts or gut instinct, he focuses on measuring the rate of change in key economic variables — especially growth and inflation. This data-driven discipline has enabled Hedgeye to consistently anticipate major economic shifts more accurately than most, including turning points in GDP trends and inflation cycles.

Their track record isn’t theoretical. Hedgeye has repeatedly called critical macro inflection points ahead of the consensus, using their quantitative models to guide real-world investment positioning. It’s not about guessing where the economy will be

— it’s about recognizing where it’s going based on measurable trends, and building a portfolio that adapts in real time.

At the core of this approach is a shift in mentality: from chasing outcomes to following a process. From hoping to knowing what to do when the data changes.

PART 3: UNDERSTANDING THE ECONOMIC QUADS

McCullough’s macro framework centers on what Hedgeye calls the GIP model — short for Growth, Inflation, and Policy.

By tracking the rate of change in growth and inflation data, Hedgeye divides the macro environment into four distinct “Quads”:

This framework has a critical advantage over traditional models: it’s based on actual market behavior, not theory. Hedgeye has tested how different asset classes and sectors perform in each Quad — and built a research engine around anticipating these shifts before they’re obvious to the consensus.

For example, if inflation is accelerating and growth is slowing, you’re in Quad 3 — a setup that typically favors defensive stocks and commodities. If both are slowing, it’s Quad 4 — which means favoring long-term bonds, large caps, and reducing risk.

Understanding these Quads helps investors get ahead of regime changes, rotate accordingly, and avoid the common trap of owning the wrong assets at the wrong time.

PART 4: TRADING WITH RISK RANGE™ SIGNALS

Knowing what to buy is one thing. Knowing when to buy it — and when to sell — is another.

That’s where Hedgeye’s Risk Range™ Signal comes in. This proprietary tool calculates the probable high and low price range for any asset based on real-time market data: price, volume, and volatility. Unlike simple technical analysis, it adapts to changing conditions on a daily basis.

The model evaluates assets across three timeframes:

• TRADE: Short term (less than 3 weeks)

• TREND: Intermediate term (3 months or more)

• TAIL: Long term (up to 3 years)

If an asset is bullish across all three durations and trading near the low end of its Risk Range™, it’s a high-probability buy signal. If the price breaks below those ranges, it’s a sign to reduce or exit the position.

This kind of systematized signal removes emotional decision-making. It helps investors avoid chasing performance, manage risk, and add to positions with conviction rather than fear.

PART 5: THE DISCIPLINE OF POSITION SIZING

You can have the right investment idea — but if it’s sized wrong, it can still derail your portfolio.

McCullough puts as much emphasis on position sizing as he does on idea generation. Every asset class, from equities to commodities, has its own minimum and maximum position sizes based on historical volatility.

For example:

• Equities: Minimum 2%, Maximum 6%

• Fixed Income: Minimum 3%, Maximum 10%

• Commodities: Minimum 1%, Maximum 4%

• Long Single Stocks: Max 3%

• Short Single Stocks: Max 2%

This disciplined sizing protects against overexposure and overconfidence. It ensures that no single trade — no matter how compelling — can sink the portfolio. It’s not about hitting home runs. It’s about consistently getting on base and avoiding major drawdowns.

PART 6: DRAWDOWNS AND THE MATH OF LOSSES

One of McCullough’s core teachings is understanding the asymmetry of losses. He breaks it down simply:

• A 20% drawdown requires a 25% gain to get back to even.

• A 50% drawdown? You need 100%.

• An 80% drawdown? You’ll need 400%.

That kind of math is devastating — especially for investors nearing retirement or managing personal savings. And it’s why risk management is the cornerstone of the Hedgeye process.

Rather than wait out losses or hope for recoveries, Hedgeye adapts quickly. If signals turn bearish, they cut exposure. If macro conditions shift, they rotate into more favorable assets.

The goal isn’t to avoid all losses — that’s impossible. The goal is to avoid the big ones that set you back years. Capital preservation, as McCullough says, is

the key to long-term compounding.

PART 7: AN ALTERNATIVE TO WALL STREET’S BROKEN MODEL

McCullough doesn’t just teach a new way of investing. He challenges the old one.

He’s candid in his critique of the traditional financial system — particularly the conflicts of interest between banks, asset managers, and the media. Research is often compromised by investment banking relationships. Analysts rarely issue “sell” ratings. Television pundits often favor entertainment over insight.

That’s why McCullough and his team built Hedgeye as an independent research platform. They don’t manage money. They don’t take commissions. They publish their work transparently and let subscribers make their own decisions.

It’s a radical shift from how Wall Street traditionally operates — and it’s earned Hedgeye both praise and pushback. But it also explains why the firm has earned the trust of institutional investors, family offices, and individual traders alike.

PART 8: LESSONS FROM REALWORLD CALLS

Throughout Master The Market, McCullough shares case studies from major market moments where Hedgeye’s process proved its worth:

• In March 2009, they flipped bullish just as the S&P 500 bottomed.

• In 2020, Hedgeye warned of the COVID market crash weeks before it happened — then pivoted to a risk-on stance during the recovery.

• In 2022, they warned of Quad 4 conditions, calling for higher volatility, rising interest rates, and a sharp correction in growth stocks.

These aren’t “I told you so” moments. They’re demonstrations of how a data-driven, emotionfree process can help investors anticipate major shifts — and act before the crowd does.

PART 9: BUILDING THE TOOLS FOR EVERYONE

One of the most compelling aspects of McCullough’s approach is that it’s not just for professionals. The Hedgeye platform is built for anyone who’s serious about investing — whether they’re managing institutional capital or their own retirement account.

Subscribers gain access to:

• Daily macro briefings

• Risk Range™ signals on hundreds of assets

• Real-time updates from Hedgeye’s team of analysts

• Portfolio guidance tailored to current Quads

• Educational content to understand the “why” behind every call

• In 2008, the firm called the housing and financial crisis early — moving to 85% cash while others stayed long.

In short, it’s the kind of transparency and access that Wall Street rarely offers. And it empowers investors to take ownership of their financial future — with tools that are clear, consistent, and proven over time.

“BUILDAPROCESS.STICKTO IT.ANDLETTHATPROCESS GUIDEYOUTHROUGHEVERY PHASEOFTHECYCLE.”

CONCLUSION: A MINDSET FOR THE LONG RUN

Keith McCullough’s Master The Market isn’t just a how-to manual. It’s a mindset.

It encourages investors to ask better questions, trust data over opinion, and commit to a process that respects both risk and opportunity. It’s about playing the long game — not chasing fads or reacting to headlines.

In a world where the market changes faster

than ever and narratives can overwhelm reason, McCullough’s framework offers a rare thing: clarity. Whether you’re a seasoned investor or just starting out, the message is the same:

Build a process. Stick to it. And let that process guide you through every phase of the cycle.

***You can download a free copy of Keith’s eBook at www.hedgeye.com/book

KEITH MCCULLOUGH CEO Hedgeye

As a former hedge fund manager, Keith McCullough is a 24-year industry veteran who challenges mainstream financial media and Wall Street with independent research. Serving institutional investors managing over $10 trillion globally, Keith’s team also produces research for professional investors and financial advisors. Hedgeye is a bold, trusted, no-excuses provider of real-time investment research and a premier online financial media company. Our all-star research team is unafraid of rocking the boat and is committed to delivering the highest caliber investment ideas through rigorous quantitative, bottom-up and macro analysis with an emphasis on timing.

Buy-Sell Provisions in Family Office Investments: Key Benefits and Considerations

BY YEHUDA BRAUNSTEIN & JACOB SHIFFER SADIS & GOLDBERG

As family offices continue to increase the number of direct investments made in privately held companies¹, they need to have a strong understanding of buy-sell provisions in governing agreements. These provisions serve as strategic tools for managing ownership transitions, protecting capital, and minimizing disruption in connection with a family office’s investments. Whether investing as a majority owner, a co-investor, or a passive investor, a family office looking to negotiate buy-sell provisions should emphasize flexibility, valuation clarity, and

control over transfer mechanisms, all of which are essential for long-term wealth preservation and risk management/mitigation.

This article will (1) explain the basic structure of typical buy-sell provisions; (2) outline certain key considerations and best practices that family offices should consider implementing when negotiating and structuring buy-sell provisions; and (3) address certain drafting considerations in connection with buy-sell provisions.

I. WHAT IS A BUY-SELL PROVISION?

Buy-sell provisions define the terms pursuant to which ownership interests in an investment or operating business may be bought or sold. These provisions are usually triggered by specific events, such as: (x) a partner’s death, disability, divorce, voluntary exit, or (y) a disagreement among business partners. For family offices, crafting wellthought-out and protective buy-sell provisions in transactions with co-investors, partners, or operators helps ensure control, clarity, and continuity across their diverse holdings.

When family offices invest in closely-held businesses and/or collaborate with other investors or managers, they take on long-term risks tied to potential management changes, liquidity events, and partnership dynamics. A well-negotiated buysell provision can help mitigate such risks by defining exit paths, outlining valuation methodologies, and control provisions in advance, all of which should help a family office in their efforts to preserve both capital and strategic flexibility.

II. KEY CONSIDERATIONS/ BEST PRACTICES FOR FAMILY OFFICES NEGOTIATING BUYSELL PROVISIONS

When negotiating buy-sell provisions, family offices should focus on negotiating certain key provisions, including the following:

• funding mechanisms; and

• transfer restrictions.

• triggering events;

• valuation methodologies;

Addressing each of these areas carefully can help align investment outcomes with a family office’s general risk profile and strategic goals.

Triggering Events

Buy-sell provisions are typically activated by one or more triggering events that are negotiated, defined and agreed upon by the parties in advance.

The most common triggering events seen in buysell provisions are death, disability, retirement, or voluntarily exit of a manager. However, family offices may wish to expand these provisions to include additional triggering events that may be applicable to a particular investment, such as disputes among the partners, bankruptcy filings, key person departures and/or specific regulatory changes. Tailoring these provisions to match a family office’s investment goals can help add predictability and elements of control during a potentially uncertain transition phase. Additionally, clarity in defining triggering events can help parties avoid confusion, disputes, and litigation.

Valuation Methodologies

Defining and adequately describing clear valuation methodologies can help protect the family office (x) against losses in value generally and/or (y) in connection with any potential disputes related to asset value. Family offices should seek to align the valuation provisions with the economic realities of a given investment. Some common valuation approaches include fixed prices, predetermined formulas, performance-based multiples and/or third-party appraisals. Each approach has its unique set of pros and

cons. For example, fixed prices will likely require updates year-to-year but can provide the family office predictability. Meanwhile, predetermined formulas and performance-based multiples can provide investors with their preferred calculation method but may lead to issues in the event that earnings or EBITDA are inflated or deflated due to recent market swings. Finally, third-party appraisals can provide a simpler and more accurate view of the value; however, they tend to be expensive and may not be worth the cost depending on the value of the investment. As a side note, parties should always agree in advance who will cover the cost of third-party appraisal.

For portfolio companies, adding provisions for regular valuation updates can protect against price manipulation, outdated assumptions or sudden market shifts. This helps family offices avoid any surprises while providing them with the assurance they can make an informed decision on a current basis, using an accurate picture of their investment.

Funding Mechanisms

Funding mechanisms are essential to prevent parties from having to liquidate assets, unexpectedly borrow at unfavorable terms, or walk away entirely from a transaction. Family offices often negotiate the inclusion of life insurance policies, escrow arrangements, insurance-backed purchases, or staged buyouts to ensure liquidity is available when a buy-sell provision is triggered. Other mechanisms may include annuities, internal reserves or the use of promissory notes. When deciding on which funding mechanism is appropriate, family offices should ensure they will avoid depleting reserves or over-leveraging existing assets.

Transfer Restrictions

For many family offices, maintaining their preferred level of control is often a key priority, especially if long-term or multigenerational interests in an investment are at the top of their minds. While the goal of a buy-sell provision is to restrict transferability when a triggering event occurs, family offices should ensure that buy-sell provisions always outline who can and cannot acquire interests.

Common approaches to transfer and control restrictions include rights of first refusal and similar veto rights over purchases by outside investors. Transfer restrictions should help ensure that ownership remains with the family office (or with trusted partners) and can help avoid unwanted dilution, misalignment, or governance disruption. Additionally, control provisions should align with the family office’s general governance strategy, including board composition and voting rights.

III. DRAFTING

CONSIDERATIONS

In order to effectively and accurately negotiate and draft the buy-sell provisions discussed above, family offices should prioritize legal and financial due diligence. Obtaining a comprehensive picture of their investment should help provide a family office with the ability to structure buy-sell provisions in a way that maximizes flexibility in connection with an investment. Adding built-in flexibility for future reinvestment or sale allows the family office to pivot or reinvest proceeds in aligned opportunities. For example, family offices may add reinvestment rights or drag-along provisions or potentially work with co-investors to make sure these provisions

align with everyone’s vision.

In addition, it is essential that a buy-sell provision supports the family office’s broader goals and decision-making structure. Further, as these goals evolve over time, buy-sell provisions previously agreed to should be reviewed periodically to help the family office determine if the provisions (x) still align with the family office’s overall investment strategy and (y) comply with any applicable legal and/or regulatory developments.

IV. CONCLUSION

Buy-sell provisions and family office investment

1 https://www.sadis.com/insights/direct-investing-by-family-offices

goals are constantly evolving. It is imperative for a family office to assess any buy-sell provisions in existing documentation to ensure that they are consistent with the family office’s objectives. A periodic review of all buy-sell provisions applicable to a family office investment should help ensure that such provisions continue to make sense in light of any changes and align with the investment goals of the family office.

If you have any questions about the topics covered in this article, please contact Yehuda M. Braunstein (Partner), Head of Family Office Practice, at ybraunstein@sadis.com or (212) 573-8029.

YEHUDA BRAUNSTEIN Partner

Sadis & Goldberg

Yehuda M. Braunstein heads up the Family Office practice and is also a member of the firm’s Financial Services and Corporate groups. Yehuda counsels family office clients in connection with all aspects of their operations, including formation issues, governance and compensation issues, strategic planning, joint ventures, co-investments, transactional and day to day matters as well as compliance issues.

JACOB SHIFFER

Associate Sadis

& Goldberg

Jacob Shiffer is an associate in the firm’s Financial Services and Corporate groups. Jacob concentrates his practices on fund formation, mergers and acquisitions, and general corporate matters.

Prior to joining Sadis, Jacob served in the United States Air Force for eight years, where he worked as an Analyst.

Operational Excellence as a Deal Multiplier: How Supply Chain Strategy Drives Valuation in Middle Market Exits

BY TRAVIS LOOMIS

WITHUM

In middle-market private equity and M&A, narratives often focus on the common growth levers of market expansion, product innovation, customer acquisition. Yet, many deals are won or lost on a less glamorous, but equally powerful, dimension of operational readiness. And within that, supply chain strategy is perhaps the most undervalued multiplier of deal value.

Supply chain inefficiencies silently erode margins, drag down working capital, and inflate risk – all of which directly depress enterprise value. Conversely, streamlined operations and a well-tuned supply chain can accelerate EBITDA growth, reduce customer churn, and improve valuation multiples.

This article takes a deep dive into how operational excellence, specifically supply chain optimization, acts as a deal multiplier in middle market exits. It will cover the strategic rationale, core value drivers, integration with due diligence, and in-depth case studies of real-world impact.

THE STRATEGIC RATIONALE:

WHY SUPPLY CHAIN MATTERS IN M&A

As buyers (especially private equity firms and strategic acquirers) become more sophisticated, their focus has expanded beyond financial statements to operational maturity. Modern diligence dives into metrics like:

• Inventory turnover

• Supplier concentration risk

• Fulfillment error rates

• Lead time variability

• Freight costs per unit

• Forecast accuracy

• SKU rationalization

Companies that score well on these operational KPIs signal a lower-risk investment and scalable growth. These attributes often translate to higher multiples and smoother transactions.

On the flip side, poor visibility into operational performance, excessive inventory buffers, or chaotic fulfillment workflows introduce friction and invite revaluation.

VALUE LEVERS: HOW SUPPLY CHAIN DRIVES ENTERPRISE VALUE

There are five key supply chain-driven value levers that impact enterprise value in the middle market:

1. MARGIN EXPANSION

Reducing cost of goods sold (COGS) through sourcing optimization, freight consolidation, lean manufacturing, and better warehouse practices can significantly improve gross margins.

For example:

Sourcing Optimization: Renegotiating supplier contracts or finding new sources with lower cost structures can yield immediate gains. A company that switches 40% of its raw material sourcing to a regional supplier with lower transportation costs and higher reliability can realize savings of 3-5% on COGS.

Freight Consolidation: Leveraging multi-stop truckload shipping or zone skipping can reduce freight costs per unit by 10-15%. This is especially critical in today’s volatile fuel pricing environment.

Lean Manufacturing: Reducing rework, defects, and downtime has a direct impact on production costs. Applying Six Sigma principles or cellular layouts can improve throughput and capacity utilization.

Each of these actions drives margin improvements that drop straight to EBITDA and can be a primary driver of valuation.

2. WORKING CAPITAL EFFICIENCY

Working capital is often the hidden source of value in a transaction. Optimizing inventory levels, tightening receivables management, and negotiating better payment terms with suppliers can yield significant liquidity improvements.

Key areas include:

Inventory Optimization: Using demand planning tools and ABC classification to align safety stock with actual variability reduces bloated inventory. Cutting average days inventory outstanding (DIO) by 20 days for a $60M revenue business can free up over $3M in cash.

Receivables Management: Automating collections, offering early payment incentives, and aligning credit policies with risk profiles help improve days sales outstanding (DSO).

Payables Strategy: Strategic extension of payables without damaging supplier relationships helps preserve cash. Leveraging supply chain finance tools or dynamic discounting adds flexibility.

in tight credit environments.

3. SCALABILITY

A scalable supply chain can absorb increased demand without a linear increase in costs. Buyers want to see how a business can grow without significant capital outlays or added complexity.

Key enablers of scalability include: Automation: Implementing warehouse management systems (WMS), scanning technologies, or robotic process automation (RPA) can improve throughput without expanding labor.

3PL Integration: Outsourcing non-core logistics functions allows companies to flex with demand seasonality and geographic expansion.

Sales & Operations Planning (S&OP): A mature S&OP process synchronizes supply with demand across departments, reducing costly surprises.

For example, a $40M food manufacturer that integrated a regional 3PL and automated its inventory tracking was able to increase order volume by 30% with only a 5% increase in headcount.

4. RISK MITIGATION

Supply chain risk is now a board-level topic with major consequences. From geopolitical events to natural disasters to supplier bankruptcies, buyers care deeply about operational resilience.

Risk mitigation strategies include:

Buyers heavily scrutinize the cash conversion cycle. Companies with strong cash discipline not only fetch better valuations but are also more attractive

Supplier Diversification: Reducing reliance on single-source or offshore-only vendors lowers exposure to tariffs, port delays, and pandemics.

Business Continuity Planning (BCP): Creating contingency stock, backup logistics routes, and alternate production capacity helps ensure fulfillment during disruptions.

Contract Strengthening: Robust service level agreements (SLAs), force majeure clauses, and insurance-backed commitments can de-risk supplier performance.

Firms that demonstrate proactive risk management often pass diligence hurdles faster and negotiate fewer holdbacks or earnouts tied to supply chain performance.

5. DILIGENCE READINESS

Even a well-run company can lose value in a transaction if operational data is disorganized. Buyers increasingly demand full transparency into cost structures, fulfillment performance, and sourcing models.

Diligence readiness means:

Data Hygiene: This is foundational. Companies must ensure their ERP systems reflect accurate vendor codes, SKU hierarchies, lead times, and cost fields. Duplicate entries, inconsistent naming conventions, and outdated fields can confuse buyers and increase perceived risk. Master data management (MDM) solutions can be deployed even at the middle market level with modest investment.

Reporting Capabilities: Dashboards and selfservice analytics are becoming the norm. Tools like Power BI, Tableau, or Looker can connect to ERP and WMS systems to provide visual access to key KPIs such as on-time delivery, fill rates, freight

cost per unit, and many others. Middle market companies should empower their teams with realtime insights, not rely solely on static Excel reports.

Predictive AI and Analytics: AI is no longer out of reach for the middle market. Tools that forecast demand using machine learning, detect anomalies in logistics performance, or predict vendor delays based on past patterns can significantly reduce working capital needs and fulfillment disruptions. Emerging platforms like o9 Solutions, Netstock, or even Microsoft’s AI-based Azure services are enabling smaller firms to access enterprise-grade forecasting and simulation tools.

Companies that invest early in operational visibility not only justify their asking price but also shorten deal timelines and reduce the need for escrow.

TRENDS IN BUYER EXPECTATIONS

The profile of the modern acquirer has evolved, most prominently in the middle market. Operational excellence is no longer just a bonus, but an expectation. Many typical risk levers previously ignored or sidestepped now need to be reviewed and addressed prior to closing or risk being subject to revaluations or contingencies affecting earnout potential or working capital.

Let’s explore some of the most critical trends in buyer expectations:

EXPOSURE TO CHINA AND HIGH-RISK GEOGRAPHIES

Buyers are increasingly wary of overexposure to China, given geopolitical tensions, rising labor

costs, tariffs, and inconsistent enforcement of IP laws. Companies that proactively diversify to Vietnam, Mexico, or reshoring strategies often have a competitive edge.

Example: A packaging company sourcing 95% of materials from China shifted 40% to Mexico over 18 months. Although unit costs increased slightly, lead times were cut by 35%, and tariff exposure was minimized. This derisking was rewarded with a higher valuation by a PE acquirer seeking North American-centric supply chains.

LOGISTICS COST AND VOLUME SENSITIVITY

Buyers are examining how logistics costs scale with volume. Companies with strong transportation strategies (i.e., zone skipping, dedicated lanes, carrier mix) demonstrate better margin resiliency.

Scenario: Two similar eCommerce companies were evaluated by a strategic buyer. One had a fragmented carrier base and paid premium rates during peak. The other used pooled shipments and regional carriers, saving 12% annually. The latter received a higher valuation multiple due to cost scalability and carrier optimization.

OPERATIONAL TALENT AND DEPTH OF BENCH

Buyers want assurance that post-close performance won’t decline due to talent gaps. They look for strong mid-level managers, succession plans, and capable operational leaders.

Observation: A common diligence red flag is founder-led operations with no second-tier leadership. Investing in talent 12-18 months preexit ensures smoother transitions and can enhance

buyer confidence.

INTEGRATION READINESS

Strategic buyers in particular want to know how easily a business can be absorbed into their platform. This includes:

• Common systems or compatibility with ERP

• Flexibility of supply agreements

• Redundancy in key roles

Companies with documented APIs, shared logistics platforms, or proven post-close integration stories often command a premium.

INFLATIONARY RESILIENCE

Finally, the past few years have introduced persistent inflation across commodities, freight, and labor. Buyers want to know:

• What strategies, and to what degree of success, have been employed to mitigate inflationary pressures?

• Can the company pass on costs quickly?

• Are supplier contracts indexed?

• Is there a clear understanding of cost-to-serve by product line?

Companies that track contribution margin by SKU, or customer, can make rapid pricing decisions and are seen as agile, not vulnerable.

DEEPENING THE CASE FOR OPERATIONAL STRATEGY

Let’s look at a more advanced case study that brings multiple levers together:

Company Profile:

• Industry: Home Improvement Products

• Revenue: $120M

• EBITDA: $14M

• Event: Sale to Strategic European Buyer

Challenges:

• 18-week lead times due to Asia-centric sourcing

• High seasonal inventory swings

• Fragmented freight spending across 22 carriers

• No integrated demand planning

Actions Taken Over 18 Months:

• Shifted 30% of sourcing to Central America and U.S.-based vendors

• Deployed a Tier 2 demand planning and S&OP platform

• Consolidated to five preferred carriers with rate locks

• Cross-trained warehouse staff and added peak season automation

Results:

• Average lead time reduced to 10 weeks

• Inventory carrying costs cut by $1.2M

• Freight cost per unit dropped 8.5%

• EBITDA growth by over 20%

CONCLUSION: OPERATIONAL STRATEGY AS AN EXIT STRATEGY

Operational excellence is no longer optional. In a competitive and often uncertain deal environment, it’s one of the few levers sellers can fully control.

Supply chain strategy is not just about cost management and awareness. It has far-reaching impacts to valuation, defensibility, and deal certainty. Independent sponsors, family offices, and founder-led businesses that prioritize this early in the investment cycle can typically realize superior outcomes.

Operational excellence is not the icing on the cake. It is the cake.

TRAVIS LOOMIS Advisory Lead Withum

Travis Loomis is the Transaction Advisory lead specializing in Supply Chain Operations. With over 10 years of experience in supply chain and M&A consulting, Travis specializes in operations strategy, process design and improvement, supply chain optimization, merger integration management, and data analytics. His industry expertise spans Industrial and Consumer Products, Retail, Food & Beverage and Healthcare. He works with clients to build and sustain strategic competitive advantages and drive bottom-line benefits informed by candid communication and data-driven insights.

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