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What is Recapitalization?

October 25, 2011 By Sozo Staff

Could your business use an infusion of cash? Are you looking to grow the profits of an underperforming business before putting your trucking company for sale? More and more business owners are turning to recapitalization as a means to finance expansion or maximize the outcome of a business sale.

How It Works

Most owners have a good portion of their own wealth, and sometimes lines of their personal credit, locked up in their business. Accessing that capital has traditionally meant selling a trucking company, sometimes at less than its fair value. For some, recapitalization offers an alternative to the traditional merger and acquisition. Also known as a partial sale, a recapitalization occurs when an owner sells an interest in their company to an outside investor like a private equity group. The seller is able to pull capital from the company while retaining some ownership control, while the private equity group is given the opportunity to grow the company in hopes of earning a return on their investment.

Why It’s Popular

For some business owners, recapitalization is a way to increase flexibility and spread out risk. Private equity firms rely on a team of strong and experienced executives and managers to boost value over a period of several years. Instead of making reinvestment choices on your own, you’ll be sharing the decisions, costs, and risks with a group of professionals. Meanwhile, the capital you receive from selling a portion of your business can be used to diversify your retirement investments, pay down debt, spend more time with your family, or whatever else you desire, all without forcing you to give up your stake in the company you worked so hard to build.

Is Recapitalization Right For Your Truck Business?

If your truck company is in a position to grow but you don’t have the funding to make it happen, a recap can create liquidity without the need to track down financing or make costly interest payments. In some cases, it can also help you avoid filing for bankruptcy. However, the outcome of an equity recapitalization depends on the true value of your business. Whether you’re contemplating a merger or acquisition or a recapitalization, displaying your full potential to investors will help secure the highest cash value for your sale. A truck business broker can perform an accurate trucking company valuation. It’s also important to make sure the terms of the transaction are spelled out clearly, and that you’re comfortable with those terms. When performed correctly, a recapitalization can provide you with a financial reward for all those years of hard work without requiring you to turn over the reins before you’re ready.

Filed Under: Transportation

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