CNL Strategic Capital Sells Portfolio Company Stake to Sub-Manager Affiliate for $29.2M
CNL Strategic Capital LLC sold its minority equity stake in Resolution Economics LLC for about $29.2 million in net cash proceeds to an entity owned by an affiliate of the fund’s sub-manager, Levine Leichtman Strategic Capital LLC, the nontraded middle-market private equity fund said Oct. 7.
The fund invested about $7.1 million in Resolution Economics common equity in January 2020. The sale of its about 7.8% indirect ownership interest closed Oct. 2 as part of a recapitalization of the company, which also repaid the fund’s about $2.8 million second-lien debt investment in Resolution Economics.
The buyer, REG Investco LLC, is owned by an affiliate of Levine Leichtman Strategic Capital together with Resolution Economics management and other existing owners. CNL Strategic Capital said the terms of the purchase and sale agreement were negotiated among related parties and not at arm’s length with unaffiliated persons.
The fund received an opinion from Lincoln International LLC on the fairness of the consideration to the fund from a financial point of view. A majority of the fund’s disinterested directors, including a majority of its independent directors, approved the sale as fair and reasonable to the fund, CNL Strategic Capital said.
Resolution Economics, founded in 1998, is a specialty consulting firm that provides economic and statistical analysis and expert testimony to law firms, corporations, and government entities in labor and employment and commercial litigation matters. Its work includes class action, multi-plaintiff, and single-plaintiff matters alleging wrongful employment practices, with a focus on discrimination in recruitment and hiring. CNL Strategic Capital’s original $10 million co-investment in the firm was made alongside a debt and equity investment from the LMM II Fund.
The fund carried the equity stake at a fair value of $27.4 million as of June 30. The second-lien notes paid 15% interest and were due Dec. 30, 2027.
CNL Strategic Capital is externally managed by CNL Strategic Capital Management LLC and Levine Leichtman Strategic Capital, an affiliate of Levine Leichtman Capital Partners LLC. The fund acquires controlling interests in middle-market businesses, typically pairing equity stakes with loan positions, and also makes minority co-investments.
The fund reported aggregate net asset value of $1.53 billion and total assets of about $1.58 billion as of Aug. 31. Class I net asset value per share rose to $40.08 from $39.55 the prior month, as the fair value of 15 of the fund’s 18 portfolio company investments increased, the company said.
The exit follows a failed effort earlier this year to expand the fund’s liquidity program. In June, after two adjournments, the fund’s proposed enhanced liquidity plan, a structured share repurchase program for the four full calendar quarters following approval, fell short of the two-thirds supermajority vote required for approval. About 20.1 million shares voted in favor, compared with the roughly 24.2 million needed.
The company said at the time that it would continue as a perpetual-life vehicle and keep administering its existing share repurchase program, which limits repurchases to 10% of aggregate net asset value per calendar year. The fund conducts repurchases quarterly, most recently Sept. 30.
In August, a fund subsidiary extended the maturity of its revolving line of credit with Valley National Bank to Nov. 15 from Aug. 15.
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