Recapitalization as an Estate Planning Strategy


For a typical business owner, their Company grows to become the family’s largest asset over time. As with any concentration issue, that can be financially risky. Though wealth concentration is classified as a “high-class problem”, the business owner has worked hard to build the enterprise and should review proper estate planning options then take steps to decrease the risk.

A recapitalization is a wealth diversifying estate planning strategy utilized by business owners.

Recapitalizations funded by debt and/or equity can be used to generate a large cash disbursement out of the business so the owners can invest some of the proceeds in other stocks, businesses, assets or securities to diversify wealth.

Recapitalizations can result in continued majority or minority ownership of the business. This is typically driven by long-term goals and retirement and/or succession planning. Sometimes a business owner wants to pay off debt, pay for college educations, buy a second home (the list can go on), but all their time, energy and capital are in the business. A recapitalization can provide a solution, and is often preferred to selling the business all-together. Recapitalizations or “Recaps” are often viewed as an intermediate step to an eventual sale down the road.

Sometimes recapitalizations are a preferred method to shift ownership between partners in a company. Recapitalizations are also used to pay out an investor, shift ownership between partners, facilitate a management buyout or intergenerational transfer, or put in place a patient growth-friendly capital structure that conserves free cashflow.

Whatever the reason is for the recapitalization, the owners are wise to seek a strategic or financial partner that is willing and able to help grow the business. This is because they want to increase the value of their retained ownership as much as possible. Further, the business owner should evaluate the cultural fit, and the financial, management and operational expertise that the partner brings to the table.

Depending on the transaction, it is prudent for the business owner to hire proper representation when undertaking a recapitalization. This may include legal counsel, an accounting firm, an investment banker, and sometimes a business valuation expert.

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