The private equity market has developed a recapitalization structure that offers an outcome for many private business owners that is superior to an outright sale.
A private equity recapitalization (“Recap”) is a combination of:
- The sale of 100% of the Company to the Buyer
- A series of financing transactions by Buyer
- Buyer borrows from banks or other lenders
- The private equity group contributes cash for control equity position
- Entrepreneur/selling shareholders contribute cash for minority equity position
- A second liquidity event usually occurs 3 to 5 years after the sale
For entrepreneurs who have built wealth inside their companies, a recapitalization is an excellent tool to create current liquidity for the owner and provide for additional upside through continued equity ownership post-transition.
Types of transactions:
- Debt Recapitalization
- Majority Recapitalization
- Management Buyout
- Minority Equity-Led Recapitalization
- Balance Sheet Restructuring