Fotajek

The organizational and financial structure of the Fojtasek companies had been in flux since the flush of 1994. By March 1995, three different financial relationss have been proposed to streamline and restructure the firm an knocked out(p)right acquisition, a lever dated recapitalization, and a hybrid movement called individual(a) IPO. Heritage Partners is interested in taking a stake in the Fojtasek Companies by proposing aPrivate IPO transaction.The paper will snap the health of the Fojtasek companies and the economic benefits gained from Heritage Partners proposal. Through careful calculations, one would recommend the proposed transactions to take place between Heritage and the Fojtasek family. Founded in 1986, Heritage Partners has veritable a business expertise in family companies. Their value-added can be seen in the General Partners, all of whom had successful track records in Private Equity.Of the three elements that tell apart them, the most important is their developm ent of the Private IPO structure. This financial strategy enables majority holding trance reducing estate taxation for the founder and management. For the Fojtasek family, they had been quest potential buyers to restructure their company. Unlike its other product and distribution channel, business in the Baloleum Division has been declining. Additionally, the founder Joe Fojtasek has decided to step down at the age of 73 and hand over his role to his sons.Thus, Fojtasek companies decided to take advantage of the opportunity to radically streamline its structure for future growthbuyout, leveraged recapitalization, or Private IPO. There are two common disadvantages with leveraged buyouts and recapitalizations a higher credit and default risk that comes with having a high leverage, and a possible loss of majority control that can lead to conflicts of interest. From both Fojtaseks and Heritages perspective, it would be optimal to have a hybrid transaction that would lower debt level s while retaining family control of operation.From Heritages perspective, the exchange of securities under a Private IPO, instead of a large cash payout, would not only leave out ambiguities concerning tax obligations but also make financing for the transaction feasible. Moral hazard of family members is essentially reduced as their equity is being tied to the firm. From Fostaseks perspective, the ability to retain family control of the company makes certain that some or all of management would not be replaced. In this sense, the Private IPO transaction does address the information gap, making this hybrid strategy an optimal strategy in this context.