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RECAPITALIZATIONS

Like much of the rest of the population in the USA today, business owners are considering retirement or a second career earlier than ever before. There are also many instances where almost all of the business owner’s assets are in the form of his/her company’s net worth and there is a need to diversify his/her asset portfolio.

While there are several options available to address these issues, many business owners feel that while there may be very good reasons to liquidate their business equity at this time, they also feel strongly that the company will be worth much more in the future. Many business owners in their fifties and sixties want to continue to operate their companies for several more years but to take some of their equity off the table now. They also want to have their “second bite of the apple” somewhere down the road at a price that reflects a higher value than today.

In this scenario, a strategic sale or partnership would not be ideal. A preferred option could be a “Private Equity Group Assisted Recapitalization” This type of solution is now possible due to the emergence of Private Equity Groups (PEGs). PEGs are independent investment funds that exist to own and grow business enterprises that fit their investment criteria. They invest in both private and public companies that have demonstrated a profitable business model and have a customer base. There are now thousands of operating PEGs in the USA in all sizes, and most of them presently have an appetite for attractive investments. The Beringer Group has long standing relationships with over 100 PEG’s and can present appropriate investments to them.

An example of a PEG Assisted Recap is as follows:

Assumptions:

• An owner of a growing, successful private business wishes to sell 49% of his/her company while retaining control.
• The Beringer Group obtains the interest of a PEG for the owner and they all agree that the value of the company is $50 million dollars.
• These assumptions indicate a re-investment of $25.5 million ($50X51%) by the owner.
• The PEG invests $24.5 million in equity and debt and owns 49% of the company.

Results:

• Owner receives a pre tax cash payment of $24.5 million ($50 million less the $25.5 million re-investment). This is usually taxed at capital gains rates.
• Owner retains a 51% ownership position that can be sold later at a much higher price if the company remains successful.

The Beringer Group has successfully designed and implemented this type of transaction for many of our business owner clients.