Bryant Riley offers $7 per share to take embattled firm private

B. Riley Financial Inc., the eclectic southern California securities firm that made a big bet on a franchise business last year that has blown up, started the week reporting a $330 million markdown linked to that investment, the Franchise Group.

With its share price falling like a knife, the firm, with several hundred retail financial advisors under its roof, is ending the week now being pursued by its namesake, chairman and co-CEO, Bryant Riley.

On Friday morning, the firm disclosed that Bryant Riley offered $7 per share to take it private. With a little more than 30 million shares outstanding, the transaction would cost close to $210 million.

Seven dollars per share for B. Riley Financial Inc. would definitely be a disappointment for shareholders, who saw the firm hit $52 per share a year ago, right on the heels of B. Riley Financial investing $216.5 million as part of the $2.8 billion management-led acquisition of Franchise Group, also known as FRG.

The business controls franchise brands such as Pet Supplies Plus, Wag N’ Wash and The Vitamin Shoppe.

Bloomberg News reported on Monday that the Securities and Exchange Commission is looking into whether the firm provided accurate information to investors about the Franchise Group deal.

At the end of July, B. Riley Financial shares, with the ticker RILY, were trading just above $20. At noon on Friday, they were $6.09.

B. Riley Financial must move quickly in such a difficult time, noted one veteran industry observer.

"This is really kind of a shocking turn of events for B. Riley, but if management and the board can save or protect the firm, a $7 per share bid makes sense to me," said Larry Roth, managing partner at RLR Strategic Partners. "But there will be a trail of litigation from angry shareholders."

"The firm has lots of good advisors, clients and a solid banking team," Roth said. "If they do something quickly to stabilize the firm they should be fine. If they don’t, who knows?"

Another senior industry executive, who spoke privately to InvestmentNews about the matter, wondered if it was best for the firm to have Bryant Riley remain in control. "He's a great trader, but with all the problems coming from the Franchise Group, is he the guy to run a complicated, multi-business holding company?"

In his letter to the board dated yesterday, Bryan Riley said that he was "extremely confident in the company’s ability to continue to successfully execute our strategy."

"I believe that the company, its clients and customers, and employees would benefit greatly from private ownership of the company," he wrote in making the $7 per share bid. Shares of RILY traded as low as $4.51 on Thursday.

"I want to make it clear that I plan on continuing to report financials to the SEC and our bonds and preferred shares will continue to be publicly traded," he wrote. "It is possible that I will continue to list on a secondary exchange if there are shareholders that would like to participate in this transaction."

RILY went public at $5 per share through a merger with Great American Group in 2014, and since that time has returned over $20 to shareholders, including through dividends and share buybacks, Bryant Riley added. 

In January, Brian Kahn stepped down as chief executive of Franchise Group, just months after a leveraged buyout aided by B. Riley Financial Inc., as regulators looked into his ties to the collapse of a hedge fund.

In April B. Riley said that an independent investigation had concluded that the firm and its executives had no involvement or knowledge of any suspected misconduct linked to the Franchise Group.