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Top 10 Benefits of a Minority Recapitalisation

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Discover 10 benefits of completing a minority recapitalisation for your business.

A minority recapitalisation, also known as a “minority buyout”, is a viable solution for business owners who need to achieve liquidity but do not want to sell their company outright. Often used to complement and extend the liquidity from existing capital sources – such as cash-on-hand, traditional bank loans or senior debt – a minority recapitalisation can be funded through a combination of mezzanine or subordinated debt and/or preferred equity. As such, a recapitalisation can be structured in a variety of ways to support a company’s growth objectives or help shareholders achieve their liquidity goals without giving up majority control to outside investors. Why might you want to complete a minority recapitalisation for your business?

  • To provide liquidity for a shareholder who wants to achieve partial or full liquidity
  • To consolidate shareholder ownership
  • To transition ownership to a subsequent generation, managers or to employee stock ownership plans (ESOP)
  • To finance a growth event, such as an acquisition or expansion

Here are the top 10 benefits of a minority recapitalisation:

  1. You do not need to rely on existing financing sources—A minority recapitalisation broadens your financing options and will provide more capital than simply relying on existing cash/liquidity and senior debt capacity.
  2. It is customisable—The reasons a shareholder or business might need additional liquidity are as varied as the owners and businesses themselves. A minority recapitalisation can be tailored to fit unique requirements and to meet a range of liquidity objectives.
  3. Keep both hands on the wheel—Because liquidity does not come at the price of majority ownership, funding for shareholder consolidation or capital spending does not come at the expense of operational or cultural control.
  4. Fund future growth—Growth, achieved organically or through acquisitions, requires capital; and fast growing companies can often outpace their ability to borrow through their usual channels.  A minority recapitalisation can help extend a company’s borrowing ability for sustained growth.
  5. Less expensive than issuing common equity—The junior capital used to finance a minority recapitalisation sits between senior debt and common equity in the form of mezzanine or subordinated debt and/or preferred equity, and can provide a less dilutive, more cost effective and tax efficient structure, as opposed to issuing new common equity.
  6. Participate more fully—Remaining, active shareholders can consolidate and maximise their ownership as well as benefit from future value created by the business down the road.    
  7. Second bite at the apple—Owners looking to diversify their personal net worth can achieve partial liquidity today, while allowing the remaining equity value to grow prior to a future liquidity event or sale.
  8. Facilitate the transition—When owners decide to step back from the business to transition to a new generation, management or ESOP, a prudent and patient capital structure that works for a diverse set of interests is required. A well-structured recapitalisation can enable a smoother handover.
  9. Prelude to outright sale—Liquidity can be used to better position a company for an outright sale in the future—financing current growth initiatives or in some cases to pay down older, higher cost debt.
  10. Gain a long-term partner—Typically, minority recapitalisations are facilitated by buy-and-hold investors who are able to partner with a company for the long term.

A well-structured minority recapitalisation can provide the much-needed infusion of capital where and when companies need it most. Finding the right capital provider who understands your liquidity objectives and can tailor the right structure for you takes time and research. When working with a partner like Pricoa Private Capital, business owners receive a more streamlined due diligence and execution process, with fewer parties involved and no finance contingencies. In turn, owners can receive the liquidity they need in short order. We at Pricoa Private Capital are about relationships, not transactions, and would welcome the opportunity to talk to you about how we can help you reach your capital goals.

This document does not take into account individual circumstances, objectives or needs, nor is it intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services.  This document does not constitute investment advice and should not be used solely as the basis for any investment decision.
This article represents the views, opinions and recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered is unauthorised, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of Pricoa Private Capital is prohibited. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Pricoa Private Capital has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision. Past performance is no guarantee or reliable indicator of future results. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from this report. Pricoa Private Capital and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of Pricoa Private Capital or its affiliates.
The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients or prospects. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. For any securities or financial instruments mentioned herein, the recipient(s) of this report must make its own independent decisions.
June 3, 2019

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