WHAT IS A RECAPITALIZATION?

A recapitalization is basically a partial sale of a company. A large number of private equity funds are currently looking for companies to invest – so much so that there are now funds that specialize by industry, by minority or majority (control) stakes, as well as numerous other investment subsets.

One of the advantages of a recap is that it allows the owner to take a sizeable chunk of money off the table at today’s low capital gains rate and still take advantage of the continued future growth of the company. This is especially true of companies or owners that view today as too soon to sell, but who also realize that having 98 percent of your net worth of one’s net worth in a single asset does not always make good investment sense, as retirement is on the short-term horizon. A recap allows the owner to continue to run his or her business, receive a salary and benefits, and capture the additional equity growth the company can obtain. Outside investors bring a depth of experience and work with the owner to better position the company for its eventual sale sometime in the future.