Strategic Capital Restructuring ("SCR") impacts the ownership and/or the debt structure of a privately-owned business.
A well-structured and properly executed Strategic Capital Restructuring can align a private company's capital structure with the long-term business strategy and owner priorities.
Strategic Capital Restructuring may be done for various key reasons, including:
Liquidity for Shareholders
The founder of a business is planning to retire. He has financial plans that may necessitate the sale of the business. Taking out a 20% or 40% portion of the business value, however, may be an alternative to selling the company outright. Additionally, recapitalizing the business with debt may reduce the value of the stock before selling a portion of the ownership, offering a positive tax effect.
Tax Advantageous Weallth Transfer & Succession
A combination of owner's liquidity event with succession planning, like top management or next-generation family members' buy-in, is a unique tool to align the company for future growth. A key consideration is how ownership changes affect control, since in an equity recapitalization, an outside equity investor receives ownership. Bringing in an investor, whether majority or minority, heightens owners’ fiduciary responsibilities. With a new equity investor, the owner no longer has the only say. Key decisions related to major capital expenditures, dividends, or management roles must incorporate the views of the new capital provider.
A business owner wants to expand operations. Outfitting a new facility and absorbing all of the growth costs would require new capital. He had already borrowed from a bank to acquire a competitor, so more debt was not an option. However, there are many outside investors interested in owning a piece of the business, ready to come as minority shareholders.
Paying Down Debt
During the last economic expansion, the business owner expanded by borrowing to acquire a competitor. Due to the following economic softness and industry changes EBITDA is down 20%, and the business won’t be able to refinance the outstanding loan. However, bringing in a new minority owner can increase the equity capital and pay down the debt, allowing the business to comfortably refinance.
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- Identify the company’s strategic goals and objectives
- Enable your business to achieve strategic objectives
- Help you reach personal financial priorities
- Align business capital structure with its long-term strategy
- Develop plans for aligning capital structure with the company goals
- Conduct an analysis of the company’s financial performance and key financial metrics
- Evaluate different financing options and determine which options are best suited to the company’s needs