Permira is recouping some of its investment in LegalZoom more than three years after investing in the Glendale, California, provider of online legal services for small businesses, families and individuals.
LegalZoom is issuing $440 million in loans to fund a $249 million dividend to shareholders and repay $178 million in debt, Moody’s reports. The transaction will push LegalZoom’s leverage to 8.2x debt-to-adjusted-EBITDA, Moody’s said. S&P Global Ratings estimates LegalZoom’s adjusted leverage will be 9x when the deal closes.
“Leverage is currently very high at 8.2x and the ratings could face downward pressure if debt to adjusted EBITDA is not decreased below 7x or [free cash flow] was negative on other than a temporary basis,” Moody’s said.
S&P considers greater than 5x debt-to-EBITDA highly leveraged. The credit-rating company said it expects growth in LegalZoom’s EBITDA to help reduce the company’s debt to the high 7x range by the end of 2018.
The $249 million dividend comes two years after LegalZoom issued $184 million in majority debt-funded shareholder returns in 2015, Moody’s said.
Permira holds the biggest stake in LegalZoom, Moody’s said. It’s unclear exactly how much the PE firm owns.
In February 2014, Permira invested in LegalZoom, buying more than $200 million of equity outstanding. Other shareholders, who rolled over their equity, include Polaris Partners, Institutional Venture Partners and Kleiner Perkins Caufield & Byers.
The 2014 transaction valued LegalZoom at $425 million, with Permira owning 47 to 50 percent of the company, Pando reported at the time. Polaris, IVP and KPCB retained minority stakes.
The sale to Permira came after LegalZoom filed to go public. The company withdrew its IPO plans in January 2014, just one month before the sale to Permira. Before the sale, Polaris had the largest stake in LegalZoom, 35.1 percent, while IVP came in second with 14.7 percent and KPCB owned 6.4 percent, a 2012 regulatory filing said.
Permira, of the U.K., invests in sectors including consumer, financial services, healthcare, industrials and technology. The PE firm closed its latest fund on 7.5 billion euros ($8.7 billion) in January. Earlier this month, Permira agreed to buy Duff & Phelps for $1.75 billion.
Permira declined comment. LegalZoom referred questions to the Nov. 6 Moody’s note. Polaris, IVP and KPCB did not return calls/messages for comment.
Action Item: Contact LegalZoom CEO John Suh at +1 323-962-8600.
LegalZoom CEO John Suh. Photo courtesy of the company.