As an entrepreneurial business matures, its owners often find themselves in a unique situation. They have worked hard and accumulated wealth but in fact, they have yet to begin enjoying the fruits of their labor. Most likely their growing business requires more capital than ever and any distribution of accumulated earnings is impossible. And since the owners love what they do, a complete sale of the business is out of the question. The result is a prototypical Catch-22 situation.
So how is the problem solved? How does the owner of a growing business diversify his or her wealth by taking some chips off the table?
The answer involves a recapitalization of the business.
In its simplest form, a recapitalization involves a partial sale of the equity holdings of the company to an investor – often a private equity group. Following the partial sale, the previous owners and the new investor(s) work in tandem to operate and grow the business. In this context, the role of the new investor is often limited to oversight and assistance with strategic and financial matters.
By definition, any investor(s) willing to invest in partial ownership of your business would only do so based upon their believe that your business will continue to grow (internally or by acquisition). Thus following recapitalization, the mutual goal would involve building a larger business for ultimate sale or second round of recapitalization at a later date. If all goes well, the previous owners find themselves selling a smaller stake in a much larger business; which has proven in certain cases to yield more (in the aggregate) than an outright sale of the business to begin with.
Recapitalizations are also very effective tools for use when i.) some but not all of the owners of a business desire to exit the business or ii.) an opportunity arises to exploit a significant growth opportunity such as the purchase of a competitor.
Whitehall Capital Corp. can assist you in an evaluation of the suitability of a recapitalization of your business; and pursuit thereof as applicable.