HOLDco

When two exit offers look close on paper but diverge by eight figures after tax, the structure is doing all the work. This episode breaks down the real after-tax math between an all-cash PE exit and a sale-leaseback paired with rolled equity.

Show Notes

Headline numbers lie. For owners of manufacturing and industrial-services businesses who also hold real estate, two exit offers that look reasonably comparable can produce a nine-million-dollar gap in after-tax day-one cash — before rolled equity does a single thing. This episode of HOLD.co works through the after-tax comparison of an all-cash PE exit against a sale-leaseback plus rolled equity deal, using a concrete four-million-dollar EBITDA business as the model.

The episode walks through both structures side by side, unpacking why the gross headline is almost never the number that matters. Key ground covered includes:

  • The baseline scenario: A business doing $4M EBITDA, a facility with a $6M cost basis appraising at $20M, and two buyers with very different pitches — a PE sponsor at 8× all-cash versus a permanent-capital buyer at 7.5× with a sale-leaseback alongside.
  • The PE deal's after-tax reality: A $32M headline shrinks to roughly $26M net after federal long-term capital gains rates plus the 3.8% net investment income tax — clean and final, but capped.
  • The permanent-capital deal in three buckets: Operating company cash, rolled equity deferred under IRC Section 351, and real estate proceeds taxed as a blend of long-term gain and depreciation recapture — each taxed differently, each requiring its own math.
  • Why the building is worth more sold separately: Cap-rate buyers price industrial real estate on its own terms; EBITDA-multiple buyers effectively discount it. Separating the two assets unlocks a pricing dynamic that a bundled sale hides entirely.
  • The rent haircut and its consequences: A $1.4M annual triple-net lease converts a $4M EBITDA business into a $2.6M EBITDA business the moment it's signed — a real reduction in future exit value that has to be weighed against $20M pulled out at closing.
  • Rolled equity under PE vs. permanent capital: The mechanics of the second bite differ sharply — a forced exit window with preferred-stack risk on one side, a yield-like compounding claim with no exit clock on the other. Which serves a seller better depends on age, liquidity, and appetite for another hold cycle.

The episode draws a clear conclusion: the permanent-capital structure produces approximately $35M in after-tax day-one cash versus roughly $26M from the PE deal — a $9M advantage before the rolled equity position is even considered. Whether that advantage holds over time hinges on how the leaseback affects future buyer underwriting and what the rolled equity actually compounds into.

More from the show: the dynamics of moving liquidity between assets without letting taxes or urgency drive the decision are explored in Capital Recycling: Moving Money With Discipline, Not Drama.

Hold.co

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What is HOLDco?

An operator-led view of holding company work: acquiring, building and running durable, cash-producing businesses in the real economy. Deal criteria, diligence, integration, capital allocation, and the management questions that arrive the day after a close.

Each episode takes one decision — what to pay, what to fix first, when to keep the seller and when not to, how to fund the next deal — and reasons it through from an operator's chair rather than a spreadsheet. Written for people buying and running businesses, not spectating on them. Five or six minutes an episode.

Topics include deal criteria and screening, diligence that finds the real risk, deal structure and seller financing, integration priorities after close, capital allocation, management transitions, and running several businesses at once.

Produced by HOLD.co, an operator-led holding company. Full details, services and further reading at https://hold.co