Interested in a minority recapitalization? Here are some benefits to consider:
- Remaining active shareholders maintain control of your business, while satisfying immediate liquidity needs with minimal dilution
- Will provide a liquidity alternative to a majority recapitalization or outright sale of the business
- Is an alternative to a less flexible, all-debt solution, that may not satisfy your full liquidity needs
- Preserves future growth capacity and operational flexibility with a prudent and patient capital structure
- Fund a growth event, such as an acquisition or expansion
- Can serve as an interim step to an outright sale, allowing your remaining or active shareholders to capture future value created by the growth of the business
It is common for shareholders to be unfamiliar with minority recapitalizations. When faced with a liquidity need, remaining active shareholders are often told their only option is a majority recapitalization or outright sale of the business. This may be unattractive if your shareholders are seeking to maintain control of the business and achieve maximum benefits from future growth.
Another alternative to a minority recapitalization would be an all-debt solution, which is likely to create limitations on future flexibility in the following ways:
- Maximizing leverage at close, reducing availability on future debt capacity to support growth or operations
- Higher level of amortization and fixed payments, limiting your ability to utilize cash flow for growth and to pay down senior debt
- Tighter covenants and restrictions on future growth events or shareholder distributions
By adding a patient layer of junior capital, such as mezzanine debt and/or preferred equity, into the financing structure, you are able to preserve cash flow available to service operations and future growth needs. Mezzanine debt and preferred equity do not have required amortization and are less dilutive than issuing new common equity.