Alaris invests by way of a preferred share as opposed to the traditional private equity model of common shares and debt. These preferred shares have several attributes that give both economic and “soft issue” benefits to our private company partners:
Entrepreneurs can keep voting control of their companies because Alaris uses non-voting shares. We do not require board representation and do not impose on the operational decisions in a company. However, we have an excellent track record of providing strategic, acquisition and capital markets advice to help our partners grow and advance to the next level of success when asked.
2. No “Put” Option
A put option is the legal right for an equity holder to demand to be bought out. This is a very standard clause in almost every private equity transaction. That put right is solely at the discretion of the equity holder and can be used at times that do not fit the time horizon of the entrepreneur and can lead to decisions being made that are not in the long term interests of the company. Alaris is one of the only private equity investors in the world that does not include a put right. The decision to sell the business in the future is solely the entrepreneur’s, thus eliminating refinancing risk that exists with both debt and equity alternatives.
3. Limit on Growth Participation
Because we do not rely on an exit to generate our returns, the preferred shares are entitled to a regular dividend, just as the entrepreneur’s common shares are. The only difference is that the preferred shares have a different dividend policy. The preferred shares go up and down with the top line results instead of net income so that we don’t have to be involved in the day to day decisions. The dividends are also subject to a limit on annual changes (typically 5-8% per year) so for companies that have a growth profile in excess of that limit, the common shares will grow by a higher rate than Alaris’ preferreds. For top performing companies, this feature results in a far superior cost of capital than common shares. Alaris has become the preferred equity source for the best companies in their respective industries.