What is Private Equity Recapitalization?
A PE Recap is a financial acquisition technique primarily used by private equity groups and/or private investors to purchase a portion of an ongoing business while allowing a business owner to retain some equity to take advantage of future growth.
When is a PE Recap Right for a Business?
Owners of privately-held businesses typically have a large portion of their personal net worth tied up in the companies they have built. A PE Recap offers a vast menu of sale and liquidity options that can be tailored to a business owner’s personal objectives, such as allowing an owner to take “chips off the table,” securing a deep-pocketed or strategically helpful partner, preparing the business for growth, and positioning an owner to take advantage of upside in a future sale. Simply put, by selling less than 100% of the business to a financially strong partner an owner can put his or her business on secure financial footing, enjoy some personal liquidity, continue to lead the business he or she has built, and provide a path to additional upside.
What are the Benefits?
- Flexibility. Provides owners flexibility to tailor a transaction to fit personal objectives with respect to liquidity, financial growth, financial stability, and future involvement.
- Continuity. Positions owners and senior managers to stay involved with the company and maintain the culture that they have worked hard to build, either in a full-time leadership role or contributing as a board member or advisor.
- Liquidity. Provides owners with significant liquidity for financial diversification, wealth planning and intergenerational transfers. When designing a transaction, the ACT team works with owners to find the most tax advantaged structure that best suits their needs.
-Equity Appreciation. By maintaining equity in the company, an owner is positioned to reap the rewards of combining their continued involvement in the business with the financial strength and strategic assistance a PE partner brings.
- Management Alignment. PE firms typically establish equity incentive programs that will enable the management team to participate in the rewards of growing the business.
- Capital Structure to Support Growth. PE firms bring capital resources enabling that enables management teams to focus on what they do best: profitably growing the business.