B. Riley sells Great American Group to raise money to reduce its debt

B. Riley Financial, the Westwood-area financial services firm, said Monday it has sold a majority stake in its Great American settlement and appraisal business for nearly $400 million, a move aimed at reducing its debt as he struggles with the consequences of a deal turned sour.

The deal with Oaktree Capital Management will earn the company about $203 million in cash and a 47 percent stake valued at roughly $183 million in a new holding company it is forming with Oaktree. A Los Angeles-based global investment manager, Oaktree specializes in distressed assets.

“I am delighted to partner with Oaktree given its stellar track record and reputation as one of the world’s leading asset managers,” said Bryant Riley, Chairman and Co-Chief Executive Officer of B. Riley. “This transaction is an important step in our plan to reduce our debt while reinvesting in our core financial services business.”

B. Riley shares rose 25% to $5.52 in early morning trading on the Nasdaq.

The company had seen its stock fall more than 90% since last year underwriting a $2.8 billion purchase of Franchise Group, a Delaware, Ohio-based company that operates Vitamin Shoppe, Pet Supplies Plus and other retailers .

Franchise Group’s sales have slowed, its bonds are classified as junk and its founder, Brian Kahn, has been tied to the collapse of Prophecy Asset Management, a hedge fund that federal prosecutors allege they defrauded investors of $294 million.

B. Riley took on $600 million in debt to underwrite the deal and loaned Kahn $200 million to establish and take Franchise Group private, with most of the loan secured by Franchise Group stock. B. Riley has about 1.9 billion in debt, including 380 million related to the deal before Monday’s transaction with Oaktree.

The Securities and Exchange Commission has issued subpoenas to B. Riley as it investigates the company’s relationship with Kahn, 50, who resigned as CEO of Franchise Group but has not been charged with any wrongdoing and has denied any wrongdoing. crime in Prophecy.

John Hughes, co-founder of Prophecy, pleaded guilty on November 2 to conspiracy to commit securities fraud.

Riley, 57, has denied knowledge of any alleged wrongdoing at Prophecy. An outside law firm also concluded that neither he nor others at the financial services firm had any involvement or knowledge of any wrongdoing at Prophecy, which had offices in New York and South Carolina.

But the scandal has threatened Riley’s 27-year-old firm, which advises on mergers and acquisitions, manages stock offerings and provides investment research and other services for its mostly small- and mid-cap client companies .

In August, B. Riley cut its investment in Franchise Group to $370 million and expects to post a loss of up to $475 million in the second quarter, when it reports delayed earnings. After posting record profits and revenue in 2021, the company has lost money for the past two years.

In order to conserve cash, B. Riley suspended a dividend it paid its founder $27 million last year and renegotiated some debt. Riley also offered to take his company private for $7 a share, which a board committee is considering.

B. Riley primarily provides financial services, but has made investments in consumer companies, beginning in 2016 with legacy Internet service provider United Online. The company also acquired and repositioned the brands of fading apparel companies, including girls’ clothing brand Justice, which is now sold at Walmart.

The big US deal is part of a strategy to reduce its debt that also includes the yet-to-be-announced sale of its clothing brands.

B. Riley Financial was formed in 2014 by a merger of Riley’s private equity firm with Great American, which was public at the time.