Recapitalizations

For many owners, selling the entire business is not the best exit strategy.  A recapitalization – the sale of a partial (minority or controlling) interest in the company – can offer critical advantages.  Buyers might include larger corporations, private equity groups, angel investors, or individuals seeking to a leadership position as well as equity position.

Benefits of a recapitalization may include:

• Injects fresh capital to help grow the business. 
• Can bring additional management talent
• Allows shareholders to “take chips off the table” while preserving financial upside
• Allows sellers to reduce stress, spend more time with family, traveling, and pursuing other personal interests.
• In the case of corporate investors, can bring additional products, distribution, technology, capacity and other resources to take the company to the next level
• Can increase returns on equity by applying additional financial leverage.

Recapitalizations are usually more complex than an outright sale of the business.  Additional challenges to be addressed:

• Chemistry between the seller and buyer/investor is critical, as they will share ownership stakes and/or management responsibilities
• Division of responsibilities between seller and buyer/investor needs to be worked out
• Valuation of a partial stakes in a business is more complex
• Intermediaries involved must be securities licensed in order to effect the sale of securities.

A decision about recapitalization vs. a sale is not a black and white one, nor one that needs to be definitively resolved at the outset of the process.  The choice for recap is highly dependent upon finding the right buyer/investor during the sales process.  Our approach is to help the business owner fully understand the potential benefits and risks of this strategy, which options (if any) make the most sense for the owner, and to incorporate these preferences into the marketing and negotiations processes.

  Top of Page