Lower middle-market company owners may opt for a majority recapitalization to achieve multiple objectives. This strategic move involves selling a significant portion of their ownership to an investment partner. This investment partner is often a private equity group that focuses on the sector or a strategic buyer such as a supplier or customer. This partial exit enables the business owner to realize some of the value of their company and “take chips off the table.” The infusion of an investment partner, often a private equity firm, brings professional expertise and resources, contributing to organizational professionalization.
Simultaneously, the partnership provides access to additional capital, which is crucial for fueling the company’s growth through strategic initiatives like acquisitions. The additional funds empower the company to expand its market presence, diversify its offerings, and pursue opportunities that contribute to overall competitiveness. By pursuing a majority recap, owners can strike a balance between liquidity, professionalization, and securing the financial means necessary for the company’s expansion.
Majority recapitalizations are ideal for companies with an adjusted EBITDA of $1 million or more as companies much smaller than that are unlikely to be large enough for majority buyers. Additionally, the companies are typically still in a growth phase and led by executives committed to staying involved for several more years. This strategy allows leaders to achieve partial liquidity and bring on a strategic partner to assist in guiding the business, providing both financial flexibility and ongoing involvement from the partner.
Companies that opt for a majority recapitalization (recap) often do so because they seek additional capital to fuel expansion and strategic initiatives, making a majority recap a potential fit for companies with ambitious growth plans.
In addition to recaps, Raincatcher offers a full suite of other investment banking services, such as M&A.
Companies that are over $3m in adjusted EBITDA may have the option to take on a minority investor. You can learn more about this on our minority recap page.
