MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION
FROM: Nicholas Stern, Partner, and Owen Fischer, Associate Calderwood & Harkness LLP One Vanderbilt Avenue, 44th Floor New York, NY 10017
TO: Marcus Aldridge, Co-Founder & Managing Partner, and Priya Narayanan, Co-Founder & Managing Partner Ardent Capital Partners III LP 590 Madison Avenue, 28th Floor New York, NY 10022
DATE: October 23, 2023
RE: Management Company Restructuring — Analysis of Alternative Structural Options
MATTER NO.: 1032-00005
This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP for the sole use of the addressees in connection with the above-referenced matter. This memorandum and its contents are protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. Any unauthorized review, use, disclosure, or distribution of this memorandum is strictly prohibited. If you have received this memorandum in error, please contact Nicholas Stern at (212) 558-4000 immediately.
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP has been engaged, pursuant to an engagement letter dated October 9, 2023, to advise the General Partner of Ardent Capital Partners III LP (the "Fund") on a comprehensive restructuring of its management company platform and the realignment of economics among the Fund's principals. This memorandum sets forth our analysis of the available structural alternatives for accomplishing the restructuring and provides our recommendation as to the preferred approach.
The restructuring is precipitated by two impending principal departures. David Kellner, a Senior Partner of the Ardent platform who joined in 2010, has announced his intention to retire, effective March 31, 2024. Joanna Trask, a Partner who joined in 2013, has announced her intention to depart voluntarily, effective April 15, 2024, to join another firm. Together, Kellner and Trask hold an aggregate 27% carried interest share in the Fund (Kellner 15% and Trask 12%) and corresponding membership interests in both Ardent Capital GP III LLC (the "GP") and Ardent Capital Management LLC (the "ManCo"). Their departures necessitate a reallocation of these economic interests and a reorganization of the ownership and governance of the GP and ManCo to accommodate the remaining and next-generation principals.
This memorandum evaluates three structural alternatives for the restructuring:
• Option A: Simple reallocation of existing ManCo and GP interests through direct transfer and amendment of the existing LLC agreements, without formation of any new entities.
• Option B: Formation of Ardent Capital Holdings LLC ("HoldCo") as a new Delaware LLC parent holding company, together with Ardent GP Intermediate LLC ("GP Intermediate") as an intermediate holding entity between HoldCo and the GP, creating a two-tier governance structure.
• Option C: Dissolution of the existing GP and/or ManCo entities and reconstitution as new entities with the desired membership composition.
After careful analysis, we recommend Option B as the preferred approach. The formation of HoldCo as a centralized parent entity, with GP Intermediate serving as a structural buffer between HoldCo and the GP, provides the optimal balance of governance flexibility, scalability for future fund platforms, tax efficiency, and clean separation of departing principals' economic interests — all while preserving Fund continuity and maintaining the confidence of the Fund's 47 limited partners. This structure accommodates succession planning and the integration of next-generation principals Elena Marchetti and Samuel Okonkwo into the ownership framework with appropriate vesting protections and governance rights, documented within a single HoldCo LLC Agreement rather than requiring amendments to multiple entity-level agreements.
The balance of this memorandum provides a detailed analysis of the Fund's current structure, the objectives and constraints governing the restructuring, a thorough evaluation of each structural alternative, a comparative analysis, a phased implementation roadmap, and a summary of coordination requirements with the Fund's other professional advisors.
II. BACKGROUND AND CURRENT STRUCTURE
A. The Fund
Ardent Capital Partners III LP (the "Fund") is a Delaware limited partnership formed in 2019. The Fund held its final close on April 15, 2019, and its investment period commenced on June 30, 2019. The Fund's investment strategy focuses on control and significant minority investments in middle-market companies across the technology-enabled services, healthcare services, and business services sectors.
The Fund's key financial and structural parameters are as follows:
• Total commitments: $2.8 billion, received from 47 limited partners.
• Capital called to date: Approximately $1.96 billion, representing approximately 70% of total commitments.
• Invested capital: Approximately $1.88 billion has been deployed into portfolio investments.
• Active portfolio companies: The Fund currently holds 11 active portfolio company investments.
• Fund term: The Fund's stated term expires on December 31, 2029, subject to two one-year extensions at the discretion of the General Partner.
• Investment period end date: The investment period is scheduled to conclude on June 30, 2025.
As of September 30, 2023, the Fund's performance metrics are as follows:
• Gross MOIC: 1.42x
• Net IRR: 14.7%
• Unrealized value: Approximately $2.33 billion
• Realized proceeds: Approximately $445 million
These performance figures position the Fund in the upper quartile of its vintage year and support the thesis that continuity of the management platform and investment team is of significant importance to the Fund's limited partners.
B. The General Partner
Ardent Capital GP III LLC (the "GP") is a Delaware limited liability company that serves as the sole general partner of the Fund. The GP was formed contemporaneously with the Fund and is responsible for all investment decisions, Fund governance, and operational management of the Fund's affairs.
The GP made a commitment of $42 million to the Fund, representing 1.5% of total commitments, consistent with market practice for funds of this size and vintage.
The GP's current membership is as follows:
The GP's registered agent is Prestige Registered Agents LLC, located at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The GP's current EIN is 84-3291063.
C. The Management Company
Ardent Capital Management LLC (the "ManCo") is a Delaware limited liability company that serves as the registered investment adviser and manager of the Fund. The ManCo is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended, and maintains SEC registration under CRD Number 298417.
The ManCo's principal office is located at 590 Madison Avenue, 28th Floor, New York, NY 10022. The ManCo currently employs 62 professionals across investment, operations, finance, investor relations, legal, and compliance functions.
The ManCo receives an annual management fee from the Fund calculated as follows:
• During the investment period (through June 30, 2025): 1.75% of committed capital, yielding an annual management fee of approximately $49 million.
• Post-investment period (from July 1, 2025): 1.50% of invested capital (as adjusted for realizations and write-downs).
The ManCo's current membership interests are held by the same five principals as the GP, in identical percentages:
After payment of operating expenses — which amount to approximately $31.85 million per year (approximately 65% of the management fee) — the ManCo distributes approximately $17.15 million per year to its members as ManCo Profit Share, allocated in proportion to their respective membership interests. The ManCo's current EIN is 84-3291070.
D. Current Carry Allocation
The Fund provides for a carried interest of 20% of net profits, subject to an 8% preferred return and a full catch-up allocation to the General Partner. The carried interest is allocated among the GP's members in proportion to their respective membership interests in the GP.
The Fund's Limited Partnership Agreement (the "LPA") provides for a 100% joint and several clawback obligation among the GP members, with each member required to maintain an individual escrow equal to 30% of all carry distributions received, to secure the clawback obligation.
The current carry allocation is as follows:
As of September 30, 2023, $87.6 million in carried interest has accrued but has not yet been distributed.
E. Current Ownership Diagram
The current organizational structure of the Ardent platform is a flat, single-tier arrangement. The five principals — Aldridge, Narayanan, Kellner, Trask, and Hsiao — each hold direct membership interests in both the GP and the ManCo. There is no holding company, intermediate entity, or other parent-level vehicle interposed between the individual principals and the operating entities. Each principal's GP membership interest and ManCo membership interest are legally separate instruments, but the percentages are aligned and the economics flow through both entities in parallel.
This structure, while appropriate at the time of Fund formation, presents significant limitations in the context of a restructuring involving multiple departures and the integration of next-generation principals, as discussed in detail in Sections IV through VI below. A detailed diagram of the current organizational structure is provided in Appendix A.
F. Departing Principals
1. David Kellner
David Kellner, age 61, is a Senior Partner of the Ardent platform. He joined Ardent in 2010 and has served as a key member of the investment team across multiple fund cycles. Mr. Kellner has announced his intention to retire from active investment management, effective March 31, 2024.
Mr. Kellner's current economic position is as follows:
• GP/Carry share: 15%
• GP commitment: $6.3 million total ($42M × 15%)
• Funded GP commitment: $4.41 million (70% called)
• Unfunded GP commitment: $1.89 million
• Vested carried interest: $13.14 million (accrued as of September 30, 2023)
• Carry escrow balance: $3.94 million
Mr. Kellner's departure is characterized as a voluntary retirement and is not the result of any for-cause termination or dispute with the remaining principals. It is anticipated that Mr. Kellner will be amenable to a cooperative transition, including a Senior Advisor arrangement as discussed in Section VIII.B below.
2. Joanna Trask
Joanna Trask, age 48, is a Partner of the Ardent platform. She joined Ardent in 2013 and has been responsible for origination and execution of transactions primarily in the healthcare services sector. Ms. Trask has announced her intention to depart voluntarily, effective April 15, 2024, to join another private equity firm.
Ms. Trask's current economic position is as follows:
• GP/Carry share: 12%
• GP commitment: $5.04 million total ($42M × 12%)
• Funded GP commitment: $3.53 million (70% called)
• Unfunded GP commitment: $1.51 million
• Vested carried interest: $10.51 million (accrued as of September 30, 2023)
• Carry escrow balance: $3.15 million
Ms. Trask's departure to a competing firm introduces additional considerations regarding non-competition and non-solicitation protections, as well as the treatment of her vested and unvested carried interest. Unlike Mr. Kellner's retirement, Ms. Trask's voluntary departure to a competitor is expected to result in a more negotiated set of separation terms, including potential partial forfeiture of vested carry.
3. Departing Principals' Counsel
Both Kellner and Trask have retained Whitford & Chase LLP as their legal counsel in connection with the restructuring and their respective separations. Their engagement team consists of Richard Beaulieu, a partner specializing in executive compensation and private fund matters, and Hannah Polk, an associate. Whitford & Chase LLP is located at 200 Park Avenue, Suite 4200, New York, NY 10166.
G. Remaining and Next-Generation Principals
The post-restructuring principal group will consist of five individuals — the three remaining principals and two next-generation principals who will be integrated into the ownership structure for the first time.
1. Remaining Principals
Marcus Aldridge (age 56), Co-Founder and Managing Partner, will remain as the senior leader of the Ardent platform. Mr. Aldridge's post-restructuring target economics are 42% of carry and ManCo profit share, representing an increase of 7 percentage points from his current 35% allocation.
Priya Narayanan (age 53), Co-Founder and Managing Partner, will remain as the co-senior leader of the Ardent platform alongside Mr. Aldridge. Ms. Narayanan's post-restructuring target economics are 36% of carry and ManCo profit share, representing an increase of 6 percentage points from her current 30% allocation.
Robert Hsiao (age 44), Partner, will remain and assume an expanded role within the Ardent platform. Mr. Hsiao's post-restructuring target economics are 14% of carry and ManCo profit share, representing a significant increase of 6 percentage points from his current 8% allocation, reflecting his growing contribution to the platform's investment activities and his role in next-generation leadership development.
2. Next-Generation Principals
Elena Marchetti (age 38), currently a Principal at Ardent, joined the firm in 2017. Ms. Marchetti has been a key contributor to the Fund's technology-enabled services investments and is being promoted to the ownership group as part of the restructuring. She will receive a 4% carry allocation from the restructured pool.
Samuel Okonkwo (age 36), currently a Principal at Ardent, joined the firm in 2018. Mr. Okonkwo has been instrumental in the Fund's business services investments and, like Ms. Marchetti, is being promoted to the ownership group. He will receive a 4% carry allocation from the restructured pool.
Both Marchetti and Okonkwo will receive their economic interests subject to appropriate vesting schedules, tag-along and drag-along protections, and buy-sell provisions, the terms of which will be documented in the governing agreements of the restructured entities.
III. OBJECTIVES OF THE RESTRUCTURING
A. Primary Objectives
The restructuring is designed to accomplish the following primary objectives:
1. Accommodate the departures of Kellner and Trask with clean separation of their economic interests from the go-forward platform. The restructuring must provide for the orderly exit of both departing principals, including the settlement of their carried interest entitlements, the assumption or release of their unfunded GP commitment obligations, the imposition of appropriate restrictive covenants, and the elimination of any residual governance rights or membership interests in the operating entities. The goal is a definitive and complete separation that avoids future disputes, ambiguity, or entanglement between the departing principals and the ongoing platform.
2. Reallocate the aggregate 27% carry share and corresponding ManCo profit share among remaining and next-generation principals. The 15% previously held by Kellner and the 12% previously held by Trask — totaling 27% of the Fund's carried interest — must be redistributed to the continuing principal group in a manner that reflects each principal's relative contribution, seniority, and role within the go-forward platform.
3. Integrate next-generation principals (Marchetti and Okonkwo) into the ownership structure with appropriate vesting and governance rights. The restructuring presents an opportunity to bring Marchetti and Okonkwo into the ownership framework in a manner that incentivizes their continued commitment to the platform, aligns their economic interests with those of the Managing Partners, and provides appropriate protections for all parties — including vesting schedules, forfeiture provisions, and governance participation commensurate with their seniority.
4. Establish a scalable governance and ownership framework for succession planning across future funds. The restructuring should not be designed solely for the current Fund. The resulting structure should be durable and extensible, capable of accommodating the formation and operation of future funds (Fund IV, Fund V, and beyond) without requiring a further reorganization of the platform's core governance architecture.
5. Maintain continuity of the Fund's operations, investment strategy, and LP relationships. Above all, the restructuring must be implemented in a manner that preserves the Fund's operational continuity, avoids disruption to portfolio company management, and maintains the trust and confidence of the Fund's 47 limited partners. Any structural changes must be communicated to LPs in a manner that reinforces the stability and forward-looking nature of the Ardent platform.
B. Constraints
The restructuring must be accomplished within the following constraints:
1. Compliance with the existing LPA. The Fund's Limited Partnership Agreement contains several provisions directly relevant to the restructuring, including LPAC consent requirements under Section 9.4, key-person provisions under Section 5.2, and GP transfer restrictions under Section 8.3. Any structural alternative must be evaluated for compliance with these provisions and any others that may be implicated by the contemplated changes.
2. Compliance with 14 side letters. The Fund has entered into 14 side letters with various limited partners, several of which impose additional requirements or restrictions relevant to the restructuring. In particular:
• Four side letters (with Ridgeline Public Employees' Retirement System, Pinnacle Insurance Group, Crestwood Endowment Partners, and Haverford Capital Partners) require prior written notice and, in certain cases, affirmative consent from the applicable LP prior to any "material change in management structure."
• Six side letters contain expanded key-person provisions that name David Kellner as a "Contributing Person," thereby extending the key-person protections beyond the LPA's designation of only Aldridge and Narayanan as Key Persons. Three of these six grant the applicable LP a right to suspend the investment period for 90 days pending LPAC review upon the departure of a Contributing Person.
• Eleven side letters contain most-favored-nation ("MFN") provisions, eight contain fee discount or rebate provisions, and nine contain co-investment priority rights.
3. Preservation of SEC registration. The ManCo's registration with the SEC under CRD Number 298417 must be preserved without interruption. Any structural alternative that would require withdrawal and re-registration of the advisory entity is strongly disfavored.
4. Tax efficiency. The restructuring should be structured to avoid taxable events at the entity or principal level to the greatest extent possible. In particular, the transfer or contribution of existing membership interests should be structured to qualify for tax-free treatment under applicable provisions of the Internal Revenue Code, and the allocation of built-in gain should be managed to minimize adverse tax consequences to the remaining principals.
5. Coordination with other advisors. The restructuring must be coordinated with the Fund's existing professional advisors, including fund formation counsel Pemberton Hale LLP (Victoria Langford), auditor and tax advisor Heathrow Whitman & Co. (Paul Devereux), and the departing principals' counsel Whitford & Chase LLP (Richard Beaulieu and Hannah Polk). Appropriate scope delineation among counsel is essential to avoid duplication and ensure clarity of responsibilities.
6. Preservation of placement agent tail-fee obligations. The Fund's remaining tail-fee obligations to Lockwood Placement Partners LLC (Sarah Fontaine) must not be disrupted or rendered ambiguous by any structural changes. The restructuring should be transparent to the placement agent arrangement and should not create any basis for a claim that the tail-fee obligations have been modified, terminated, or otherwise affected.
IV. OPTION A: SIMPLE REALLOCATION OF EXISTING ManCo AND GP INTERESTS
A. Description
Under Option A, the restructuring would be accomplished through direct transfers and reallocations of the five principals' existing membership interests in both the GP (Ardent Capital GP III LLC) and the ManCo (Ardent Capital Management LLC), without the formation of any new entities. Upon the effective dates of their respective departures, Kellner and Trask would withdraw as members of both the GP and the ManCo. Their membership interests would be canceled, and the resulting available interests would be redistributed among the remaining principals (Aldridge, Narayanan, and Hsiao), with new membership interests issued to the next-generation principals (Marchetti and Okonkwo).
No new entities would be formed. The GP and ManCo would each continue in existence as currently organized, with their respective LLC agreements amended and restated to reflect the new membership percentages:
Separation agreements with Kellner and Trask would be negotiated bilaterally and would govern the treatment of their vested and unvested carried interest, clawback obligations, escrow release schedules, restrictive covenants, and any transitional consulting or advisory arrangements. The Fund's LPA would not require amendment under this option, as the GP entity itself would remain unchanged — only the GP's internal membership composition would be modified.
B. Advantages
1. Simplicity. Option A is the simplest of the three alternatives from a structural and documentary standpoint. It requires the fewest documents, no new entity formations, and no new organizational layers. The restructuring is accomplished through amendments to two existing LLC agreements (GP and ManCo), separation agreements with Kellner and Trask, and related ancillary documents.
2. Lower transaction costs. Because no new entities are formed and no new LLC agreements are drafted from scratch, Option A would entail the lowest legal, accounting, and filing costs among the three alternatives. The primary cost drivers would be the negotiation of separation agreements and the drafting of amended and restated LLC agreements.
3. Preservation of existing entity structure. The GP and ManCo remain as currently organized. There is no change to the GP's identity as the sole general partner of the Fund, and there are no new entities interposed in the organizational chain. From a structural perspective, the Fund's governance framework remains unchanged.
4. Potentially simpler LP communication. Because the GP entity itself does not change — and no new entities are introduced into the GP chain — the restructuring may be communicated to LPs as a straightforward adjustment to the internal economics and personnel of the existing management team. The GP's legal identity and role as general partner of the Fund remain the same.
C. Disadvantages
1. Governance limitations. Under Option A, all principals — including the next-generation principals Marchetti and Okonkwo — would hold direct membership interests in both the GP and the ManCo. This flat ownership structure means that any future change in the principal group — whether a departure, promotion, addition, or adjustment to economics — would require amendments to two separate LLC agreements (GP and ManCo) each time. There is no centralized governance vehicle through which such changes can be implemented efficiently.
2. No structural separation between economics and governance. The Managing Partners would lack a parent-level entity through which to manage carry and fee allocations, implement vesting schedules, and exercise governance control over the platform. All governance and economic decisions would need to be made at the GP and ManCo level, with each principal holding direct voting and economic rights in both entities. This creates a cumbersome and inflexible governance environment, particularly as the principal group grows over time.
3. Scalability concerns. Option A does not create a platform structure capable of supporting future funds. When Ardent raises Fund IV, for example, a new GP entity (Ardent Capital GP IV LLC) would be required. Under Option A's flat structure, each principal would need to be admitted as a direct member of the new GP entity, with separate LLC agreements, separate membership interests, and separate economic allocations — replicating the current complexity across multiple fund vehicles. This approach becomes increasingly unwieldy as the number of funds and principals grows.
4. LP consent complexity. Although Option A does not involve the formation of new entities, the direct transfer of GP membership interests may trigger heightened scrutiny under LPA Section 8.3 (Transfer of GP Interest). The four side letters requiring consent for "material changes in management structure" may view direct transfers of GP membership interests — particularly to principals who were not original members of the GP — as a more significant structural change than the interposition of a holding company, which can be characterized as a governance enhancement rather than a transfer.
5. Tax concerns. The direct transfer of membership interests from departing principals to remaining and new principals could potentially be characterized as a sale or exchange for federal income tax purposes, triggering gain recognition at the individual level. Even if structured as a redemption and reissuance, the transactions would need to be carefully analyzed to ensure that Section 704(c) layers attach properly to the transferred interests, creating potential complexity in the allocation of built-in gain across the restructured principal group. These issues are not insurmountable but introduce a level of tax complexity that does not arise under Option B's contribution-based approach.
6. Vesting limitations. Implementing tiered vesting schedules for Marchetti and Okonkwo within the existing GP and ManCo LLC agreements would be difficult. Standard LLC agreement provisions are not well-suited to multi-year vesting with forfeiture conditions, and accommodating such provisions would likely require the use of layered side letters, complex profits-interest mechanics, or special allocation provisions — all of which add documentary complexity and increase the risk of drafting errors or interpretive disputes.
7. SEC considerations. Multiple simultaneous changes to the direct ownership of the ManCo — including the withdrawal of two existing members, the admission of two new members, and the adjustment of all remaining members' percentage interests — may require more extensive amendments to the ManCo's Form ADV than would be necessary under Option B's approach. The SEC may view these changes as raising questions about the continuity of the advisory entity's management and control, potentially triggering additional disclosure or regulatory inquiry, though we do not believe this risk is material.
D. Assessment
Option A is workable and would accomplish the immediate objective of reallocating economics among the principals. However, it is suboptimal in several important respects. It does not address the longer-term needs of the Ardent platform for succession planning, governance scalability, or structural flexibility across future fund vehicles. It creates a flat ownership structure that will become increasingly difficult to manage as the principal group evolves. For these reasons, Option A is not recommended.
V. OPTION B: FORMATION OF HOLDING COMPANY (HoldCo) WITH INTERMEDIATE ENTITY
— RECOMMENDED —
A. Description
Under Option B, the restructuring would be accomplished through the formation of two new Delaware limited liability companies and the reorganization of the Ardent platform's ownership chain into a two-tier holding company structure.
The two new entities are:
• Ardent Capital Holdings LLC ("HoldCo"): A new Delaware LLC that will serve as the parent holding company of the entire Ardent platform. All principal-level economics and governance will be consolidated at the HoldCo level.
• Ardent GP Intermediate LLC ("GP Intermediate"): A new Delaware LLC that will serve as an intermediate holding entity between HoldCo and the GP, providing an additional structural layer for liability insulation and organizational clarity.
The restructuring would proceed as follows: Each remaining principal (Aldridge, Narayanan, and Hsiao) would contribute his or her existing membership interests in the GP and the ManCo to HoldCo in exchange for membership interests in HoldCo. Kellner and Trask would withdraw as members of both the GP and the ManCo, with their departing economics governed by separate separation agreements and carry retention side letters. New membership interests in HoldCo would be issued to Marchetti and Okonkwo, subject to appropriate vesting schedules.
Following the restructuring, HoldCo would be the sole member of both the ManCo and GP Intermediate, and GP Intermediate would be the sole member of the GP. The GP would continue as the sole general partner of the Fund, and the ManCo would continue as the Fund's registered investment adviser. All carry and ManCo profit share allocations would flow through HoldCo and be distributed to HoldCo's members in accordance with their respective HoldCo membership interests.
B. Entity Structure Diagram
The post-restructuring organizational chart under Option B is as follows (a detailed diagram is provided in Appendix B):
Tier 1 — Individual Principals (HoldCo Members):
Tier 2 — GP Chain:
Ardent Capital Holdings LLC (HoldCo) owns 100% of the membership interests in Ardent GP Intermediate LLC (GP Intermediate).
Ardent GP Intermediate LLC (GP Intermediate) owns 100% of the membership interests in Ardent Capital GP III LLC (the GP).
Ardent Capital GP III LLC (the GP) serves as the sole General Partner of Ardent Capital Partners III LP (the Fund).
Tier 2 — ManCo Chain:
Ardent Capital Holdings LLC (HoldCo) owns 100% of the membership interests in Ardent Capital Management LLC (the ManCo).
Ardent Capital Management LLC (the ManCo) serves as the Investment Adviser and Manager of Ardent Capital Partners III LP (the Fund).
This structure creates a clean organizational hierarchy in which all governance and economic decisions affecting the principals are made at the HoldCo level, while the operating entities (GP and ManCo) are wholly-owned subsidiaries of HoldCo (directly in the case of the ManCo, and indirectly through GP Intermediate in the case of the GP).
C. Advantages
1. Centralized governance. Option B consolidates all principal-level economics and governance decisions at the HoldCo level. Changes in principal composition — whether arising from future departures, promotions, lateral hires, or adjustments to economics — require amendments only to the HoldCo LLC Agreement, not to the GP or ManCo agreements. This centralization dramatically simplifies the ongoing governance of the platform and reduces the transactional friction associated with personnel changes.
2. Scalability. HoldCo can serve as the parent entity for future fund general partners and management companies without any further restructuring. When Ardent forms Fund IV, for example, a new GP entity (Ardent Capital GP IV LLC) can be established as a subsidiary of HoldCo (through a new intermediate entity, if desired), with all principal-level economics continuing to be governed at the HoldCo level. This extensibility is a critical advantage for a platform with multiple fund cycles ahead of it.
3. Clean separation for departing principals. Under Option B, Kellner and Trask withdraw as direct members of the GP and ManCo, and their membership interests are extinguished. They retain no residual membership interests in any operating entity. Their go-forward economics (retained vested carry, clawback obligations, escrow release schedules) are governed exclusively by separate carry retention side letters and separation agreements — documents that are bilateral in nature and do not encumber the ongoing governance of the platform. This clean separation minimizes the risk of future disputes or entanglement between the departing principals and the continuing platform.
4. Next-generation integration. Marchetti and Okonkwo hold interests only at the HoldCo level, with appropriate vesting schedules, tag-along and drag-along protections, forfeiture provisions, and buy-sell provisions — all documented in a single HoldCo LLC Agreement. This approach provides the next-generation principals with meaningful economic participation and a clear path to increased ownership, while preserving the Managing Partners' control over governance and strategic decisions. The vesting mechanics can be tailored to include time-based vesting (e.g., four-year cliff with annual ratable vesting thereafter), performance conditions, and good-leaver/bad-leaver distinctions — all within a single, well-drafted operating agreement.
5. GP Intermediate as liability buffer. The interposition of GP Intermediate between HoldCo and the GP provides an additional structural layer that insulates HoldCo members from direct GP-level liabilities. While the LLC structure already provides limited liability protection, the intermediate entity creates an additional barrier and simplifies the GP's organizational structure (single member = GP Intermediate, rather than five individual members). This structure is consistent with institutional best practices for private equity fund platforms and is expected to be viewed favorably by LPs and their counsel.
6. Tax efficiency. The contribution of existing GP and ManCo interests by the remaining principals into HoldCo can be structured as a tax-free contribution under IRC Section 721, which provides that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. Because HoldCo will be classified as a partnership for federal income tax purposes (as a multi-member LLC that does not elect to be treated as a corporation), Section 721 should apply to the contributions, provided that the transaction is properly structured and documented. Sylvia Hartwell of Calderwood & Harkness's Tax Department is preparing a separate Tax Structuring Memorandum that will confirm this analysis and address the Section 704(b) and 704(c) allocation issues arising from built-in gain in the contributed interests.
7. LP/LPAC perception. Option B is likely to be perceived favorably by the Fund's limited partners and the LPAC. The formation of a holding company to centralize governance and facilitate succession planning is a widely recognized and accepted practice among institutional private equity platforms. The transaction can be communicated to LPs as a governance enhancement and succession-planning measure, rather than a fundamental change in the management of the Fund. The continuity of the Key Persons (Aldridge and Narayanan) and the integration of next-generation talent (Marchetti and Okonkwo) are positive narratives that can be emphasized in LP communications.
8. SEC continuity. Ardent Capital Management LLC remains the registered investment adviser under CRD Number 298417. The ManCo's legal identity is not changed; only its ownership changes (from five individual members to HoldCo as sole member). A Form ADV amendment will be required to reflect the updated ownership structure, the removal of Kellner and Trask as control persons, and the addition of Marchetti and Okonkwo as supervised persons. However, the advisory entity itself remains intact, and there is no interruption to the ManCo's registration, advisory activities, or client relationships.
D. Disadvantages
1. Complexity. Option B involves the formation and ongoing maintenance of two new entities (HoldCo and GP Intermediate), each requiring its own LLC agreement, Delaware Certificate of Formation, registered agent, EIN, and annual franchise tax payment. This creates a more complex organizational structure than Option A, with additional layers of documentation and ongoing administrative requirements.
2. Higher initial transaction costs. The formation of new entities, the preparation of additional LLC agreements (HoldCo LLC Agreement, GP Intermediate LLC Agreement, amended and restated GP LLC Agreement, amended and restated ManCo LLC Agreement), the tax analysis required for the Section 721 contribution and Section 704(c) allocations, and the additional filing fees will result in higher initial transaction costs than Option A. We estimate that the incremental cost of Option B over Option A is approximately $150,000 to $250,000 in legal and accounting fees, which is modest in the context of the overall engagement.
3. LP consent process. While Option B is likely to be viewed more favorably by LPs than Option C, it still requires LPAC consent under LPA Section 9.4 and compliance with the side-letter consent provisions applicable to Ridgeline, Pinnacle, Crestwood, and Haverford Capital Partners. The introduction of new entities in the GP chain — even as wholly-owned subsidiaries — may draw questions from LPs regarding the purpose and effect of the restructuring. These questions are manageable and anticipated, but they require preparation and a thoughtful communication strategy.
4. Ongoing administrative burden. The two additional entities require separate EINs, annual Delaware franchise taxes (currently $300 per entity per year), and ongoing corporate maintenance (annual reports, registered agent fees, record-keeping). While these costs are minimal in absolute terms, they represent an incremental administrative burden that does not exist under Option A.
E. LP Consent and LPA Analysis
1. Section 9.4 — LPAC Consent
Section 9.4 of the LPA requires LPAC consent for certain material actions by the General Partner, including structural changes to the GP's ownership or governance. The substitution of GP Intermediate as the sole member of the GP, and HoldCo as the sole member of the ManCo, constitutes a structural change to the GP's ownership chain that falls within the scope of Section 9.4. Accordingly, LPAC consent must be obtained prior to the execution of the restructuring.
We recommend preparing a comprehensive LPAC notification and consent solicitation letter that clearly describes the restructuring, its rationale, and its benefits for the Fund and its limited partners. The letter should be accompanied by a summary of the post-restructuring organizational structure, including the ownership chart and the identities and backgrounds of the next-generation principals. We further recommend scheduling a virtual LPAC meeting to present the restructuring and respond to questions.
The LPAC currently consists of four members:
Based on our understanding of the LPAC's composition and their historical interactions with the Fund's management, we anticipate that consent will be obtainable, provided that the restructuring is presented in the context of governance enhancement and succession planning, and that the continuity of the Key Persons is emphasized.
2. Section 5.2 — Key-Person Provisions
Section 5.2 of the LPA designates Marcus Aldridge and Priya Narayanan as "Key Persons." A Key Person Event is triggered under Section 5.2 if either (a) both Key Persons cease to devote substantially all of their business time and attention to the affairs of the Fund, or (b) one Key Person ceases to devote substantially all of his or her business time and attention, and no LPAC-approved substitute is designated within 120 days.
Neither Kellner nor Trask is designated as a Key Person under the LPA itself. Accordingly, the departures of Kellner and Trask do not, standing alone, trigger a Key Person Event under Section 5.2.
However, six of the Fund's 14 side letters contain "expanded key-person" provisions that name Kellner as a "Contributing Person." These provisions impose additional requirements that go beyond the LPA's baseline key-person protections. Specifically:
• All six side letters require notification to the applicable LP within 15 business days of a Contributing Person's departure from the platform.
• Three of the six side letters grant the applicable LP a right to suspend the investment period for 90 days pending LPAC review, upon the departure of a Contributing Person.
While these expanded key-person provisions do not constitute a Key Person Event under the LPA, they create notification obligations and potential investment period suspension rights that must be managed carefully. We recommend issuing timely notifications to the affected LPs, preparing detailed talking points for any inquiries, and coordinating the LPAC presentation to address expanded key-person concerns proactively. In particular, the presentation should emphasize the promotion of Marchetti and Okonkwo as evidence of the platform's depth of talent and its commitment to next-generation leadership development.
3. Section 8.3 — Transfer of GP Interest
Section 8.3 of the LPA governs transfers of the General Partner's interest in the Fund. The interposition of GP Intermediate as the sole member of the GP — which effectively changes the ownership of the GP from five individual principals to a single-entity member (GP Intermediate, itself wholly owned by HoldCo) — constitutes a transfer of GP interest for purposes of Section 8.3. This transfer is permissible under Section 8.3 with LPAC consent.
Importantly, the ultimate beneficial owners of the GP remain the same individuals — the principals of the Ardent platform — who hold their interests through the HoldCo structure rather than directly. This is a structural reorganization of the ownership chain, not a change of control. The LPAC consent solicitation should emphasize this point and make clear that the restructuring does not alter the identity of the individuals responsible for the management of the Fund.
4. Section 9.7 — Removal of GP
Section 9.7 of the LPA provides for the removal of the General Partner under specified circumstances, including a supermajority vote of the limited partners following certain triggering events. The restructuring contemplated by Option B does not involve the removal of the GP. Ardent Capital GP III LLC remains as the sole general partner of the Fund throughout the restructuring and at all times thereafter. Only the ownership of the GP changes — from direct individual membership to indirect ownership through GP Intermediate and HoldCo. Accordingly, Section 9.7 is not implicated by the restructuring.
5. Side-Letter Compliance
A comprehensive side-letter compliance analysis is required in connection with the restructuring. Based on our preliminary review, the relevant side-letter provisions can be categorized as follows:
Material-change consent provisions (4 side letters). The side letters with Ridgeline Public Employees' Retirement System, Pinnacle Insurance Group, Crestwood Endowment Partners, and Haverford Capital Partners each require prior written notice and, in certain cases, affirmative consent for any "material change in the management structure" of the Fund. The restructuring will constitute a material change for purposes of these provisions, and prior written notice and (where required) affirmative consent must be obtained from each of these LPs before the restructuring is executed. We recommend that these notices be sent concurrently with the LPAC consent solicitation and that follow-up communications be coordinated with the LPAC presentation.
MFN provisions (11 side letters). Eleven side letters contain most-favored-nation provisions. No issues are anticipated in connection with the restructuring, as management fees remain unchanged and no new economic terms are being offered to any LP that would trigger MFN equalization.
Fee discount and rebate provisions (8 side letters). Eight side letters contain provisions granting the applicable LP reduced management fees or rebates. The restructuring does not affect the management fee calculation or any fee discount or rebate arrangements. No action is required with respect to these provisions.
Co-investment priority rights (9 side letters). Nine side letters grant the applicable LP priority rights with respect to co-investment opportunities. The Fund's co-investment allocation policy will need to be updated to remove Kellner and Trask from the list of individuals authorized to allocate co-investment opportunities and to add Marchetti and Okonkwo. This is an administrative update that does not require LP consent but should be reflected in the Fund's internal policies and procedures.
We recommend that a comprehensive side-letter compliance memorandum be prepared and finalized prior to the issuance of any LP notices or consent solicitations.
F. SEC Registration Impact
The restructuring under Option B preserves the continuity of the ManCo's SEC registration. Ardent Capital Management LLC will remain the registered investment adviser, and CRD Number 298417 will be maintained without interruption.
The following SEC filings and related actions will be required:
• Form ADV amendment: The ManCo's Form ADV must be amended to reflect the updated ownership structure (HoldCo as sole member), the removal of Kellner and Trask as control persons and supervised persons, the addition of Marchetti and Okonkwo as supervised persons, the updated organizational chart (reflecting the HoldCo structure), and updated disclosures on Schedule D regarding the ManCo's direct and indirect owners.
• Form ADV Part 2A brochure supplement: Updated brochure supplements must be prepared for key personnel changes, reflecting the departures of Kellner and Trask and the addition of Marchetti and Okonkwo to the supervised persons roster.
• No interruption to advisory activities: The ManCo's advisory activities, client relationships, and regulatory obligations will continue without interruption throughout the restructuring.
We anticipate that the Form ADV amendment can be filed within 30 days of the execution of the restructuring documents, consistent with the SEC's filing requirements for material amendments.
G. Tax Considerations (Preliminary)
The tax structuring of the Option B restructuring presents several issues that are being analyzed in detail by Sylvia Hartwell of Calderwood & Harkness's Tax Department. A separate Tax Structuring Memorandum will be provided upon completion of that analysis. The following is a summary of the preliminary tax considerations:
Section 721 contribution. The contribution of existing GP and ManCo interests by the remaining principals (Aldridge, Narayanan, and Hsiao) into HoldCo can be structured as a tax-free contribution under IRC Section 721 if properly documented. Section 721 provides that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. Because HoldCo will be classified as a partnership for federal income tax purposes, this provision should be available. The key requirements are that (a) HoldCo is treated as a partnership (not a corporation), (b) each principal receives only a partnership interest in exchange for the contributed property, and (c) no disguised sale or other exception applies.
Section 704(b) and 704(c) allocations. The contribution of appreciated property (GP and ManCo interests with built-in gain) to HoldCo will require a Section 704(c) analysis to determine the allocation of built-in gain among the contributing partners. This analysis must address the selection of an appropriate allocation method (traditional method, traditional method with curative allocations, or remedial allocation method) and the impact of the Section 704(c) layers on the ongoing allocation of income, gain, loss, and deduction among HoldCo's members.
Treatment of departing principals. The treatment of Kellner's retained vested carry ($13.14 million) and Trask's partial carry forfeiture and separation payment raises specific tax questions. Kellner's retention of vested carry may be structured as a continuing interest in the GP's carried interest allocation, subject to the terms of a carry retention side letter. Trask's partial forfeiture and separation payment must be analyzed to determine whether the forfeiture results in ordinary income recognition, capital gain treatment, or a combination thereof. These issues will be addressed in the Tax Structuring Memorandum.
New EINs. New EINs have been applied for and obtained for the two new entities: HoldCo (EIN 93-1847225) and GP Intermediate (EIN 93-1847231). The existing Fund EIN (84-3291057), GP EIN (84-3291063), and ManCo EIN (84-3291070) will remain unchanged.
Coordination with auditor/tax advisor. Heathrow Whitman & Co. (Paul Devereux) will need to be coordinated on Schedule K-1 changes for the 2024 tax year, entity-level tax filings for the new entities, and the transition of the existing entity-level filings to reflect the restructured ownership chain.