Business succession and liquidity issues are often resolved through a restructuring or recapitalization of a closely-held corporation. Restructuring or recapitalizing can improve cash flow, provide facility for more working capital and enhance the wealth of company founders and shareholders. An appropriate restructuring may also provide tax sheltering from future asset and equity appreciation within the business as future appreciation is often limited by restructuring.
Recapitalizations can also play a critical role for estate and financial planning purposes. The ultimate aim of a true company recapitalization is to transfer the associated value of certain stock within an organization away from the estate.
In instances of high growth in an organization, a shareholder’s investment within the corporation may grow beyond what is required for individual support. In such circumstances, a recapitalization of the business can provide a means of transferring future equity growth to posterity and charitable organizations in a more tax efficient manner.
Other benefits to recapitalization include sheltering certain assets from potential creditors and sheltering other liabilities where owners are citizens of countries without tax treaties with the United States.
Recapitalization and restructuring activities often take place in down markets when asset valuations are depressed and overall shareholder’s equity has fallen. In these instances, corporations may issue bonds to finance the recapitalization, maintaining the ownership of the shares for themselves or a party of their choosing at the lower basis. This form of restructuring is often referred to as a leveraged buyout and is often performed using mezzanine or unitranche debt financing.
Because of the unique nature of most recapitalizations, the business valuation remains a critical component to the structure, amount and timing of a corporate restructuring. Ensuring the proper value is transferred in the restructuring, a complete valuation of the company’s various forms of stock and debt is a necessary imperative.
Recapitalizations to avoid tax liabilities can be scrutinized by the IRS. The valuation of the business must therefore be unbiased, documented and fully supportable. Our professional team has extensive experience in valuing companies and sourcing the proper capital to perform expert recapitalizations and financial restructuring. Our team provides the right mix of legal, financial planning and investment banking advice to ensure your recapitalization is appropriately valued, structured and meets your long term wealth goals.
Finally, a recapitalization may address other goals that fit the overall trajectory of the organization including internal growth via bolstered working capital, mergers and acquisitions, distressed situations and debt re-financing. Restructuring and recapitalization can also be a means of attracting new capital with additional investors and stakeholders to optimize owners’ exposure to the risks of the business.