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our presence and credibility in the small business market. In contrast to many other buyers of and investors in small businesses, we believe |
that we can buy businesses at value-oriented multiples and through our asset management activities with a group of professional, experienced |
and talented operating partners, create appreciable value. We believe our experience, track record and consistent execution of our marketing |
and investment activities will allow us to maintain a leadership position as the preferred partner for today’s small business market. Disciplined Deal Sourcing . |
We employ an institutionalized, multi-platform approach to sourcing new acquisition opportunities. Our deal sourcing efforts include leveraging |
relationships with more than 3,000 qualified deal sources through regular calling, mail and e-mail campaigns, assignment of regional marketing |
responsibilities, in-person visits and high-profile sponsorship of important conferences and industry events. We supplement these activities |
by retaining selected intermediary firms to conduct targeted searches for opportunities in specific categories on an opportunistic basis. |
As a result of the significant time and effort spent on these activities, we believe we established close relationships and unique “top |
of mind” awareness with many of the most productive intermediary sources for small business acquisition opportunities in the United |
States. While reinforcing our market leadership, this capability enables us to generate a large number of attractive acquisition opportunities. Differentiated Acquisition |
Capabilities in the Small Business Market . We deploy a differentiated approach to acquiring businesses in the small business market. |
Our management concentrates their efforts on mature companies with sustainable value propositions, which can be supported by our resources |
and institutional expertise. Our evaluation of acquisition opportunities typically involves significant input from a seasoned operating |
partner with relevant experience, which we believe enhances both our diligence and ongoing monitoring capabilities. In addition, we approach |
every acquisition opportunity with creative structures, which we believe enables us to engineer mutually attractive scenarios for sellers, |
whereas competing buyers may be limited by their rigid structural requirements. We believe our commitment to conservative capital structures |
and valuation will enhance each acquired operating subsidiary’s ability to deliver consistent levels of cash available for distribution, |
while additionally supporting reinvestment for growth. Value Proposition for |
Business Owners . We employ a creative, flexible approach by tailoring each acquisition structure to meet the specific liquidity |
needs and certain qualitative objectives of the target’s owners and management team. In addition to serving as an exit pathway for |
sellers, we seek to align our interests with the sellers by enabling them to retain and/or earn (through incentive compensation) a substantial |
economic interest in their businesses following the acquisition and by typically allowing the incumbent management team to retain operating |
control of the acquired operating subsidiary on a day-to-day basis. We believe that our company is an appealing buyer for small business |
owners and managers due to our track record of capitalizing portfolio companies conservatively, enhancing our ability to execute on its |
strategic initiatives and adding equity value. As a result, we believe business owners and managers will find our company to be a dynamic, |
value-added buyer that brings considerable resources to achieve their strategic, capital and operating needs, resulting in substantial |
value creation for the operating subsidiary. Operating Partner . |
Our manager has consistently worked with a strong network of seasoned operating partners - former entrepreneurs and executives with extensive |
experience building, managing and optimizing successful small businesses across a range of industries. We believe that our operating partner |
model will enable us to make a significant improvement in the operating subsidiary, as compared to other buyers, such as traditional private |
equity firms, which rely principally upon investment professionals to make acquisition/investment and monitoring decisions regarding not |
only the business, financial and legal due diligence aspects of a business but also the more operational aspects including industry dynamics, |
management strength and strategic growth initiatives. We typically engage an operating partner soon after identifying a target business |
for acquisition, enhancing our acquisition judgment and building the acquisition team’s relationship with the subsidiary’s |
management team. Operating partners usually serve as a member of the board of directors of an operating subsidiary and spend two to four |
days per month working with the subsidiary’s management team. We leverage the operating partner’s extensive experience to |
build the management team, improve operations and assist with strategic growth initiatives, resulting in value creation. 7 Small Business Market |
Experience . We believe the history and experience of our manager’s partnering with companies in the small business market |
allows us to identify highly attractive acquisition opportunities and add significant value to our operating subsidiaries. Our manager’s |
investment experience in the small business market prior to forming our company has further contributed to our institutional expertise |
in the acquisition, strategic and operational decisions critical to the long-term success of small businesses. Since 2000, the management |
team of our manager has collectively been presented with several thousand investment opportunities and actively worked with more than |
30 small businesses on all facets of their strategy, development and operations, which we have successfully translated into unique, institutionalized |
capabilities directed towards creating value in small businesses. Intellectual Property Our manager owns certain intellectual property |
relating to the term “1847.” Our manager has granted our company a license to use the term “1847” in its business. Employees As of December 31, 2022, our company had six full-time |
employees (excluding our operating subsidiaries described below). OUR CORPORATE STRUCTURE AND HISTORY Our company is a Delaware limited liability company |
that was formed on January 22, 2013. Your rights as a holder of common shares, and the fiduciary duties of our board of directors and |
executive officers, and any limitations relating thereto, are set forth in the operating agreement governing our company and differ from |
those applying to a Delaware corporation. However, subject to certain exceptions, the documents governing our company specify that the |
duties of our directors and officers will be generally consistent with the duties of directors and officers of a Delaware corporation. Our company is classified as a partnership for |
U.S. federal income tax purposes. Under the partnership income tax provisions, our company is not expected to incur any U.S. federal income |
tax liability; rather, each of our shareholders will be required to take into account his or her allocable share of company income, gain, |
loss, deduction and credit. As a holder of our shares, you may not receive cash distributions sufficient in amount to cover taxes in respect |
of your allocable share of our net taxable income. We will file a partnership return with the IRS and will issue you with tax information, |
including a Schedule K-1, setting forth your allocable share of our income, gain, loss, deduction, credit and other items. The U.S. federal |
income tax rules that apply to partnerships are complex, and complying with the reporting requirements may require significant time and |
expense. See “ Material U.S. Federal Income Tax Considerations ” included in our prospectus, dated August 2, 2022 and |
filed with the Securities and Exchange Commission, or the SEC, on August 4, 2022, for more information. We currently have four classes of limited liability |
company interests - the common shares, the series A senior convertible preferred shares, the series B senior convertible preferred shares |
and the allocation shares. All of our allocation shares have been and will continue to be held by our manager. On March 3, 2017, our newly formed wholly-owned |
subsidiary 1847 Neese Inc., or 1847 Neese, acquired all of the issued and outstanding capital stock of Neese, Inc., or Neese, for an aggregate |
purchase price of $6,655,000. On April 19, 2021, we entered into a stock purchase agreement with the original owners of Neese, pursuant |
to which they purchased our 55% ownership interest in 1847 Neese for a purchase price of $325,000 in cash. As a result of this transaction, |
1847 Neese is no longer a subsidiary of our company. On April 5, 2019, our newly formed indirect wholly-owned |
subsidiary 1847 Goedeker Inc., or 1847 Goedeker, acquired substantially all of the assets of Goedeker Television Co. for an aggregate |
purchase price of $6,200,000. On October 23, 2020, we distributed all of the shares of 1847 Goedeker that we held to our shareholders. |
As a result of this distribution, 1847 Goedeker is no longer a subsidiary of our company. On May 28, 2020, our newly formed wholly-owned |
subsidiary 1847 Asien acquired all of the issued and outstanding capital stock of Asien’s for an aggregate purchase price of $1,918,000 |
consisting o (i) $233,000 in cash; (ii) the issuance of an amortizing promissory note in the principal amount of $200,000; (iii) the |
issuance of a demand promissory note in the principal amount of $655,000; and (iv) 103,750 common shares of our company, having a mutually |
agreed upon value of $830,000 and a fair value of $1,037,500, which could be repurchased by 1847 Asien for a period of one year following |
the closing at a purchase price of $2.50 per share. The shares were repurchased by 1847 Asien on July 29, 2020. As a result of this transaction, |
we own 95% of 1847 Asien, with the remaining 5% held by Leonite Capital LLC, or Leonite, and 1847 Asien owns 100% of Asien’s. 1847 |
Asien was formed in the State of Delaware on March 24, 2020 and Asien’s was formed in the State of California on February 6, 2004. On September 30, 2020, our newly formed wholly-owned |
subsidiary 1847 Cabinet acquired all of the issued and outstanding capital stock of Kyle’s for an aggregate purchase price of up |
to $6,839,792, consisting of (i) $4,389,792 in cash, (ii) an 8% contingent subordinated note in the aggregate principal amount of up to |
$1,260,000, and (iii) 175,000 common shares of our company, having a mutually agreed upon value of $1,400,000 and a fair value of $3,675,000. |
As a result of this transaction, we own 92.5% of 1847 Cabinet, with the remaining 7.5% held by Leonite, and 1847 Cabinet owns 100% of |
Kyle’s. 1847 Cabinet was formed in the State of Delaware on August 21, 2020 and Kyle’s was formed in the State of Idaho on |
May 7, 1991. 8 On March 30, 2021, our newly formed wholly-owned subsidiary 1847 Wolo |
acquired all of the issued and outstanding capital stock of Wolo for an aggregate purchase price of $8,344,055, consisting of (i) $6,550,000 |
in cash, (ii) a 6% secured promissory note in the aggregate principal amount of $850,000 and (iii) cash paid to seller, net of working |
capital adjustment, of $944,056. As a result of this transaction, we own 92.5% of 1847 Wolo, with the remaining 7.5% held by Leonite, |
and 1847 Wolo owns 100% of Wolo Mfg. Corp and Wolo Industrial Horn & Signal, Inc. 1847 Wolo was formed in the State of Delaware on |
December 3, 2020. Wolo Mfg. Corp. was formed in the State of New York on August 6, 1965 and Wolo Industrial Horn & Signal, Inc. was |
formed in the State of New York on January 28, 1999. On October 8, 2021, 1847 Cabinet acquired all |
of the issued and outstanding capital stock or other equity securities of High Mountain and Innovative Cabinets for an aggregate purchase |
price of $15,441,173 (subject to adjustment), consisting of (i) $10,687,500 in cash and (ii) the issuance by 1847 Cabinet of 6% subordinated |
convertible promissory notes in the amount of $4,753,673, consisting of an aggregate principal amount of $5,880,345, net of debt discount |
of $1,126,672. As a result of this transaction, 1847 Cabinet acquired 92.5% of High Mountain and Innovative Cabinets, with the remaining |
7.5% held by Leonite. On April 1, 2022, 1847 Cabinet transferred all of its shares of High Mountain to Innovative Cabinets, as a result |
of which Innovative Cabinets now owns 92.5% of High Mountain, with the remaining 7.5% held by Leonite. High Mountain was formed in the |
State of Nevada on April 4, 2014 and Innovative Cabinets was formed in the State of Nevada on June 17, 2008. On February 9, 2023, our newly formed wholly-owned |
subsidiary 1847 ICU acquired all of the issued and outstanding capital stock of ICU Eyewear for an aggregate purchase price of $4,500,000, |
consisting of (i) 4,000,000 in cash, minus any unpaid debt of ICU Eyewear and certain transaction expenses, and (ii) the issuance of 6% |
subordinated non-convertible promissory notes in the aggregate principal amount of $500,000. As a result of this transaction, we own 100% |
of 1847 ICU, and 1847 ICU owns 100% of ICU Eyewear Holdings, Inc., which in turn owns 100% of ICU Eyewear, Inc. ICU Eyewear Holdings, |
Inc. was formed in the State of California on October 20, 2003, and ICU Eyewear, Inc. was formed in the State of California on September |
5, 1956. On May 14, 2021, we formed 1847 HQ Inc. as |
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