Strategic Recapitalization May Serve as a Viable Alternative to Selling a Business

A well-structured and properly executed Strategic Recapitalization can align a private company's capital structure with the long-term business strategy and owner priorities, including:

  • Liquidity to diversify wealth
  • Reduce risks
  • Tax and estate planning
  • Asset protection
  • Generational and succession transfer

Strategic Recapitalization 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 next-generation family members' or top management 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.

Expansion Capital

A business owner wants to expand operations. Outfitting a new facility and absorbing all of the growth costs would require new capital. Company has already borrowed from a bank to acquire a competitor, so more debt is not an option. However, there are 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 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.

Virtual fireside chat Strategic Recapitalization as a Viable Alternative to Selling a Business

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Attend virtual fireside chats about Strategic Recapitalization:

  • 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
  • Conduct company financial performance and key financial metrics analyses
  • Evaluate financing options and determine which options are best suited to the company’s needs

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