B. Riley Financial and Oaktree: A $386 Million Strategic Alliance

B. Riley Financial Forms Strategic Alliance with Oaktree

B. Riley Financial, Inc. (NASDAQ:RILY) has announced a groundbreaking partnership with Oaktree Capital Management, L.P., potentially redefining its organizational structure and market positioning. This $386 million deal is not just a financial maneuver but a forward-looking step towards creating a new entity named Great American Holdings, LLC, integrating B. Riley’s existing businesses, particularly those under its Great American Group.

Details of the Partnership Agreement

As part of the agreement's framework, B. Riley will undergo significant internal reorganization. This pivotal step involves the transfer of its Appraisal and Valuation Services, along with Retail, Wholesale & Industrial Solutions, and Real Estate Advisory businesses to the newly minted venture. In exchange for this operational shift, B. Riley is set to gain approximately $203 million in cash along with Class B Preferred Units and a 47% ownership stake in Great American Holdings’ common units. Oaktree will take the lead with a 53% interest, contributing the same amount of cash consideration, further solidifying its financial commitment.

Leadership Perspectives on the Alliance

Bryant Riley, the company’s Chairman and Co-CEO, is particularly optimistic about this alliance, highlighting the extensive experience and credibility that Oaktree brings to the table. He believes that the partnership will not only enrich client services but also align with B. Riley’s broader strategy to reduce debt while bolstering core financial operations.

Oaktree's Role in the Future Growth

Representatives from Oaktree, Nick Basso and Thomas Casarella, have expressed their commitment to injecting both capital and strategic guidance into this partnership. They are eager to collaborate with B. Riley’s leadership to cultivate the growth of Great American Group as an independent enterprise, underscoring the collaborative spirit expected from this new entity.

Moving Forward: Regulatory Approval and Future Outlook

The proposed transaction has already garnered the seal of approval from B. Riley’s Board of Directors. However, it remains subject to customary regulatory approvals and other closing conditions. The advisory roles in this transaction were undertaken by Moelis & Company LLC and Sullivan & Cromwell LLP for B. Riley, while Wachtell, Lipton, Rosen & Katz served Oaktree.

Recent Developments and Changes at B. Riley Financial

B. Riley Financial has recently been navigating a wave of financial adjustments and leadership transitions. Notably, the company has made strategic amendments to its credit facilities amidst rising interest rates, including a repayment of around $85.9 million of term loans. Along with these financial shifts, the company announced the departure of its executive Kenny Young, marking a significant change in its leadership structure.

Restructuring Initiatives and Future Plans

In its efforts to streamline its financial obligations, B. Riley plans to divest a majority stake in its Great American Group businesses while simultaneously restructuring its debts. In a bold move, Bryant Riley proposed the idea of taking the firm private, showcasing his commitment to aligning the company’s structure more closely with its operational goals.

Operational Leadership Developments

B. Riley Securities, as a key subsidiary, has introduced Brendon Philipps as the new Managing Director, focusing on Capital Structure Advisory and Liability Management strategies. This appointment comes on the backdrop of an anticipated net loss ranging between $435 million and $475 million for the second quarter. This significant loss is largely attributed to non-cash charges, yet B. Riley is tentatively maintaining its operational adjusted EBITDA in the range of $50 million to $55 million, indicating resilience amidst challenges.

Market Performance and Investor Insights

As the partnership with Oaktree unfolds, investors are keeping a keen eye on B. Riley's financial metrics. Currently, the company's market capitalization is reported at $133 million, with recent revenue figures reaching $1.22 billion—a growth of about 19.73% year over year. Nevertheless, B. Riley has faced some profitability challenges, evidenced by a negative gross profit margin of -1.24% and an operating income margin of -4.05%.

Dividend Considerations and Stock Returns

It’s worth noting that despite the financial hurdles, B. Riley maintains a significant dividend yield of 45.56%, although compounded by a steep 50% drop in dividend growth over the past year. The company’s stock has experienced notable volatility, suffering a total return of -88% over the past year and a staggering -75.65% in just the last three months.

Frequently Asked Questions

What is the purpose of the partnership between B. Riley and Oaktree?

The partnership aims to enhance client services and financial operations by creating a new holding company, Great American Holdings, LLC.

What is the total value of the deal between B. Riley and Oaktree?

The expected total enterprise value of the deal is $386 million.

Who will benefit from the restructuring at B. Riley Financial?

The restructuring is designed to streamline operations and reduce debt, potentially benefiting shareholders and clients alike.

What are the recent financial challenges faced by B. Riley Financial?

B. Riley experienced a net loss projected between $435 million to $475 million due to impairment charges and restructuring efforts.

Who is the new Managing Director at B. Riley Securities?

Brendon Philipps has been appointed as the Managing Director to oversee the Capital Structure Advisory and Liability Management efforts.

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