Engaging to Maximize Value


business-valuation-boxA  minority or majority "re-cap" occurs when you sell a stake in your company (often to a private equity firm) yet continue to run your business as both a manager and part owner, with a chunk of your wealth in liquid assets outside of your business.

The ultimate goal of many business owners is a successful sale, transitioning ownership to the next generation, and a comfortable retirement. Not too many entrepreneurs are aware that recapitalization can be a key part of the transition to the “next” chapter, for both the business and its owner. Recapitalizationis a financing technique that shifts business risk to an outside financial partner. Through a partial sale, an owner sells equity in the business to the outside investor, and then reinvests part of the cash proceeds in the restructured company in return for a continuing and significant ownership stake.

By recapitalizing with an experienced financial partner, owners share business risk with another investor. In the process, they gain capital resources as well as access to professional strategic counsel that will help them maximize the value of the business for when they eventually do leave.


Different Ways to Think About Recaps

Investment strategy counsels managing portfolio risk by holding a mix of stocks, bonds, and other assets, so one’s eggs are not concentrated in a single basket. For business owners, diversifying is particularly crucial. They started their company and invested tremendous time and personal savings into growing it.

Now may be the moment to establish a safety net, freeing up hard-earned wealth for other needs, like retirement and children’s education. A recapitalization is one way to accomplish these important goals. Private equity groups are experienced business partners that bring more than just capital to the table.  They provide industry, operational, and organizational expertise that can increase the value of a business for its eventual sale down the road.  Alliance M&A Advisor can provide assistance with the process to accomplish your goal.


When A Recap Is Not The Right Choice

A recapitalization does not make sense for owners who:

want to retire a year or two after the transaction. Short -term interest signals lack of commitment. To PE firms, this sounds like, “I want to sell and get out.”

are eyeing other careers. Owners too young to retire but interested in running different businesses represent a flight risk. PE firms prefer to back current management typically for four to seven years.

prefer all-cash to equity deals. Owners who desire cash project a “live for today” mantra. PE firms want to build business value over time.

do not really want to give up majority control. Owners who feel they should own at least 51 percent of the business may have a hard time working with partners, even though the owner remains in charge after a recapitalization.

run companies that are not well-positioned. PE firms often prefer to invest in firms with strong management teams, market leadership, and a history of consistent earnings.

 want to pass ownership down through the family. Owners more focused on passing the business down to the next generation have different goals than PE firms, which want to partner with management looking to maximize business value and eventually realize that increase in value.




Sellability Score

Sellability Gauge

How Sellable is your business?

Receive a FREE 24-page report

Get Started Now