A “recap” offers financial security, equity retention, and value gains through deleveraging, accretive add-on deals, and a potential increase in the exit multiple. In addition to capital, seasoned investors provide strategic oversight, acquisition expertise, and other value-maximizing advice.

 

Benefits of a Recapitalization

• Enables the Company’s shareholders to retain an equity position.
• Significant liquidity available for shareholders.
• Add-on acquisition(s) could be funded largely with outside equity capital, dependent upon allocation of risk and upside.
• Financial sponsors assist in building for second “exit” – “exit” may include an initial public offering (IPO).

Drawbacks of a Recapitalization

• Generally results in increasing and restructuring debt.
• Less amounts of cash at close vs. strategic sale.
• Principals normally stay in business through medium-term (3-5 years).
• Partner ‘selection’ a critical aspect of successful deal.