Recapitalization is a process that allows a business owner to convert some of the equity in their business into cash while maintaining an ownership position. This is a great option for owners that want to start the exit transition process, achieve personal liquidity, and continue to operate and grow their business. In short, recapitalization provides the conditions for some owners to accomplish all of their personal, business, and financial goals.
Some private equity groups and other investors actively buy or invest in privately-owned companies. In the lower middle-market ($5 million to $100 million companies) some investment groups prefer to structure the purchase of a company as a recapitalization, or recap. This is most common when a company is large enough to serve as a “platform” investment and the owner is willing to stay with the company as a significant shareholder after the sale. The owner is able to take some cash out of the business and retain ownership and decision-making ability going forward. Private equity firms typically seek to grow the company over a three to seven-year period and then exit. This is a double-win for the owner who is able to reduce their financial risk by diversifying their wealth into investments outside of their business, and have another significant payday when the company is sold the second time.
We work with business owners to manage the entire recap process: identify goals, perform a valuation, find a suitable financial partner, negotiate the agreement, optimize and close the deal.