How does a recapitalization differ from a sale transaction?
A recap may be thought of as a partial sale. It is the simultaneous restructuring of a company’s capital structure and equity ownership, often facilitated by a private equity firm. Recaps can take a variety of forms, but are a great means for owner-managers to generate significant cash liquidity, ongoing ownership and retained operational control of their business. It is not unusual for an owner to realize 60% – 75% of the value of their business in cash along with 1-20% or more retained equity ownership in a recap transaction. Moreover, owners can realize even greater cash liquidity on the subsequent sale of their retained ownership.
