Case studies / Subsentio
Case study · Telecom compliance
Subsentio sold 100% to an ESOP. The cash at close beat the private equity offers.
The sellers kept control of the board. Founder Steve Bock still chairs it, and his successor as CEO comes from within his C12 group.
The situation
Twenty-one years in, the founder needed a succession plan
Subsentio is the country's leading Trusted Third Party for regulatory compliance on electronic surveillance and subpoena requests in telecom. When a carrier gets a subpoena for call records or a court order for a wiretap, Subsentio does the work to help law enforcement.
Steve Bock founded the company in response to the 9/11 attacks. Twenty-one years later, he wanted to retire without breaking the promises he had made to his team. He had watched other owners, including C12 members, sell to private equity or merge, reach their financial goals, and then see the mission dropped and long-time staff let go.
The board had already tried to sell control to a private equity buyer. That negotiation failed. C12 Chair John Price then introduced Steve to Brandt Brereton and the Perpetuate team.
About Subsentio
- Greenwood Village, Colorado. 32 employees.
- A member of John Price's C12 group. Run as a Business as a Ministry, with corporate chaplains for staff.
- More than 2,500 emergency cases a year for law enforcement, including human trafficking and child exploitation.
What the owners wanted
What Steve and the sellers were after
- Liquidity for Steve so he could retire
- Cash out the staff who held seasoned stock options and warrants
- Keep the culture and the company's C12 membership
- Give all 32 employees a real stake in future growth
- Hand-pick the next CEO, on their own timeline
- Keep control of the board of directors
The alternative
The private equity deal vs. the ESOP
| Private equity buyout (first attempt) | Perpetuate-financed ESOP | |
|---|---|---|
| How much sold | 80% of the company | 100% of the company |
| Board | Sellers give up control of the board | Sellers keep control of the board indefinitely |
| Price | The PE offers on the table | Same valuation as the PE offers |
| Debt | As much debt as possible loaded on the company | Senior bank debt, junior capital, and seller notes at market rates |
| What happens next | Company resold in 3 to 5 years for the fund's return | No resale. The board picks the next CEO and C12 membership continues |
How the deal was built
An employee trust bought 100% of the stock
Perpetuate advised Subsentio and arranged the senior debt. Through its Structured Equity Fund 1, Perpetuate also led the syndicate of junior lenders. All of the financing was at market rates, not concessionary capital. The sellers and the junior lenders, including the seller-note holders, kept real equity upside.
Arranged by Perpetuate.
Led by Perpetuate's Structured Equity Fund 1.
The note holders share in the upside.
A new plan for senior management, on top of the ESOP.
The company no longer pays federal or state income tax on its earnings. According to the case study, five years of those tax savings cover the entire purchase price.
How it came out
What the sellers got
- Cash at close greater than the earlier private equity offers
- Control of the board kept indefinitely
- A CEO successor chosen from within Steve's C12 group
- Steve can retire and keep chairing the board as long as he wants
- The company stays a C12 member
- About $6.3M in capital gains tax deferred with a Section 1042 election
I can't speak highly enough about the Perpetuate team. They are professionals in every sense of the word and were there shoulder to shoulder every step of the journey. They had the opportunity to re-trade the transaction, but they didn't.
Steve Bock, majority selling shareholder and C12 member
The full case study
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The page above is the short version. Enter your email below and the download button appears right here. It's a 7-page PDF.
What's in the PDF
- The three paths Subsentio weighed, side by side
- How the financing was put together
- Strategic buyer vs. private equity vs. ESOP
- A glossary of deal terms: junior debt, seller notes, synthetic equity
- Why Steve turned down the usual exit
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Other owners, other structures
Questions about a deal like this?
Brandt Brereton, General Partner · +1 775-491-8357 · brandt@perpetuatecapital.com
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