A private equity recapitalization is a transaction that introduces outside capital from an equity sponsor (i.e., a private equity firm) and a debt provider, allowing an owner to create liquidity and diversify holdings while still maintaining either a majority or minority ownership in a company. ‘Taking some chips off the table’, a recurring idiom when referring to a leveraged recapitalization, begins to illustrate the benefits this type of transaction can provide for business owners.

Beyond providing liquidity or diversifying one’s wealth, a leveraged recapitalization offers numerous benefits to selling shareholders who are not ready to retire including the opportunity to share in the future success of the business.   Post transaction an entrepreneur will maintain continued equity ownership in an amount suitable to their personal desires.  This allows the seller to financially share in the upside of the business via a “second bite of the apple” in the event of a future sale or liquidity event.  Some other benefits of a leveraged recapitalization include:

  • Ongoing control and maintaining corporate culture
  • Facilitation of estate considerations
  • Buyout of possible shareholders with different objectives
  • Preservation of the management team
  • Freedom from personal guaranties
  • A financially strong partner with capital to fund future growth

A leveraged recapitalization is a great alternative liquidity play for private owners seeking to maximize the value of their business and still remain involved.

To learn more about how a private equity recapitalization might work for you, please give Norton Jackson a call today.