The term synthetic equity is a catch-all term for a variety of economic interests in a company that don’t also include the legal ownership of an equity interest. For anything that is labeled synthetic equity, the potential economic claim/benefit granted to the holder uses the Company’s stock price to determine the economic return, but the economic return is paid in cash instead of shares. Accordingly, the payments may dilute (i.e. reduce) value of the business because cash leaves the Company, but they don’t dilute percentage ownership because no additional shares are issued.
Senior Managing Director
Prairie Capital Advisors, Inc.
Robert Gross is Senior Managing Director and CoFounder of Prairie Capital Advisors, Inc., an employee owned investment banking firm specializing in ESOP advisory services to support growth and ownership transition strategies of middle-market companies. Mr. Gross has three decades of experience in valuation, ownership transition, capital management and financial transactions. He is a nationally-recognized industry thought leader and frequently speaks on valuation and ownership transition planning.
Posted on Thu, June 9, 2016
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