By Gregory Falcon.

A minority recapitalization is a strategy for business owners to sell a minority stake in their company to raise cash when the need arises. The specifics can be tailored to a pre-determined level of liquidity needed. For an owner seeking funding but strict on retaining majority ownership, this strategy can be very practical. Some of the standard reasons to pursue a minority recapitalization include:

  • Fund a Growth Period, whether by Acquisition or Production Uptick
  • Prepare for a large Distribution push
  • Buyout Management or Stockholders

 

Minority buyout could also satisfy liquidity needs stemming from changes in an owner’s life or adjustments in approach to their business. Indeed, some owners sell some of the equity of their company to revise their ties to it during personal change or to prepare for a new owner. Times of market uncertainty, however, demonstrate another compelling reason to start considering a minority recapitalization: redistributing risk.

Economic recession forces an owner to reconsider their priorities when it comes to product, service, new projects, even employees. When a company’s financial inconsistency envelops an owner’s personal financial situation, the decision becomes more pressing. To reduce financial obligations, minority recapitalization produces liquidity in stressful times. A reputable new partner entering through this process may help weather market volatility, keep the corporate structure solvent, and perhaps produce renewed latitude to stabilize the company.

An owner seeking a business sale in totality may also find that minority recapitalizations offer decreased risk when the market is volatile.  If market conditions are not conducive to comparable company sale multiples, an owner may consider selling part of their equity a useful, if temporary, alternative. Achieving a fully-realized exit can be both monetarily and emotionally draining to reach your valuation goal. In order to not dilute the company’s value but rather take some of the pressure off, even maximize future value, a minority recapitalization may present an ideal situation later!

Depending on a company’s debt capacity and the owner’s goal, there are several options to raise capital and take on a minority buyout; Plethora Businesses’ knowledgeable staff can talk you through the options and point you in a direction that makes the most sense. Whether you want to achieve growth, start succession planning, roll with changes in your life and the economy, or position your company towards eventual sale, you do not need to settle for a structure that does not work for you.