FAQ
Capital Advantage
| The Alaris Structure |
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| FAQ |
What happens in the event of the sale of a Private Company Partner to a third party in the future?
In the event of a sale, Alaris is treated as a regular equity partner. Alaris' interest can be purchased by the third party along with other equity holders, or such interest can be transferred on a tax-deferred basis to the new entity upon agreement of both parties. Alaris' structure would not hinder a future sale of any of our Private Company Partners.
What covenants are in place to protect your interest in the Private Company Partners?
We require our Private Company Partners to provide us with monthly (unaudited) financial statements as well as annual (audited) financial statements so we can monitor their financial health. In additional, although we do not have any voting rights, we have strong protective covenants in place with our Private Company Partners to protect our Distributions. In addition, we typically require our prior consent to be obtained by our Private Company Partners prior to them carrying out certain activities outside of the ordinary course of business, such as:
- Any material change in business of the company
- Material acquisition or divestiture
- Incurring new debt over predetermined levels
- Entering into non-arm's length transactions above prescribed levels
- Mergers or corporate reorganizations
- Extraordinary capital expenditures
What is the impact of an Alaris transaction on the financial statements of the Private Company Partner?
As an equity investment, the funds injected by Alaris are shown as equity on a private company's balance sheet. On the private company's income statement, the payments of distributions to Alaris are deductible for tax and financial reporting purposes.
What are the income tax implications of the Alaris structure?
Typically, Alaris structures its interest as the purchase of preferred equity in a newly formed limited partnership. There are no immediate tax implications in the formation of the partnership and the transfer of a private company's business into the partnership. In addition, profits of the partnership are generally taxed in the hands of the partner. Proceeds from Alaris' financing may be removed from the partnership at effectively capital gains rates in certain circumstances.
Do the distributions paid to Alaris' by a Private Company Partner go down if a company's sales go down?
The distributions paid to Alaris track the performance of the private company similar to other equity investments. The only difference is that Alaris tracks top-line performance (ie. sales, gross revenues, gross profit, same clinic sales, or same store sales) while traditional equity investors track bottom line performance. As such, if sales are the chosen performance metric and they decline at some point in the future, distributions to Alaris will decline accordingly.