Minority
Recapitalization

Realize your liquidity needs without giving up control.
A minority recapitalization, also known as a “minority buyout,” is an alternative means of raising capital to generate liquidity. In a minority recapitalization, leverage in the form of senior debt, mezzanine financing, and/or preferred equity can be provided to an existing, positive cash-flow generating business.

Companies, like yours, can use financing from a minority recapitalization  to fund a variety of capital needs, including payment to shareholders who need partial liquidity or are seeking an exit. A minority recapitalization allows the remaining, active shareholders to maintain majority control of the business, while satisfying the other shareholders' liquidity needs. Your company’s future cash flow can then be used to repay indebtedness in the following years.
Typical size
  • $10 million - $100 million
Investment focus
  • Middle-market companies with attractive growth prospects and positive cash flow
  • Company revenues between $30 million and $300 million
  • Incumbent management teams and active ownership with an economic stake in the company’s success
Structural characteristics
  • Senior debt, mezzanine debt, and/or preferred equity
  • Principal repaid after senior debt has been fully amortized
  • Combination of cash coupon and deferred interest
  • Nominal warrants representing minority stake in issuer
  • Ability to provide senior debt alongside junior capital for a seamless, one-stop solution with a single, relationship-oriented capital partner
Issuer benefits
  • Capacity to fund across your capital structure; a one-stop shop with senior debt, mezzanine or subordinated debt and preferred equity
  • Specialty in mezzanine, which is a less dilutive type of capital
  • Supportive, patient, relationship-oriented partner
  • Deep pockets to provide follow-on capital to fund your
    future growth
  • Streamlined due diligence and execution process, ensuring speed and certainty of close
  • Industry agnostic, with deep experience financing manufacturing, service, and distribution businesses
OUR TWO CENTS
MINORITY RECAP
Hear Anna Sabiston, Vice President, explain how you can take a little money off the table today but still run, operate, and grow your business through a minority recapitalization.

We understand that satisfying shareholders can be a pain point for you. When there is a large liquidity need, we can act in partnership with your existing management team to facilitate a cash-out with minimal dilution by means of a minority recapitalization.
Typical uses
You may use capital raised from a minority recapitalization in a variety of ways:
  • Buy out inactive shareholders
  • Consolidate shareholder ownership
  • Transition majority share from owners to management team
  • Shift ownership from one generation to the next
  • Transfer majority share from owners to employee stock ownership plan, or ESOP
  • Fund a growth event, such as an acquisition or expansion
  • Refinance existing debt
Benefits
Interested in a minority recapitalization? Here are some benefits to consider:
Alternatives
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:
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.
This example shows the potential value for existing shareholders in Year 5 of a minority recapitalization vs. a majority recapitalization, including the cumulative after-tax impact of the cash interest:
perspectives
Second bite at the apple: Achieving liquidity today maintaining control for liquidity tomorrow
The Prudential Private Capital Guide to Minority Recapitalizations.
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“What we found with Prudential Private Capital is they listened to us. They listened to our objectives, and they’ve been able to help us come up with a strategy where, over time, we can get the money out that the founders need, and the management team can continue to grow the company and will have the ability to keep the company culture and keep everything we’ve worked for over the years in tact as we grow.”
Mark Herman, CEO, Dion’s Pizza
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