A recap is any transaction that changes the capital structure of a business. A recapitalization can deliver liquidity, fund growth, or strengthen the balance sheet without forcing a full sale. New capital comes in, either as debt, equity, or a combination of the two. The right structure depends on what the owner is trying to accomplish.
Scenario One: Liquidity for Shareholders
Founders are approaching retirement and want cash off the table without walking away from a business they have spent decades building.
How it works:
- The business is worth $100 million, with $15 million of bank debt and $85 million of equity.
- A management team alone cannot reasonably fund an $85 million transaction.
- The business increases borrowing from $15 million to $50 million and distributes the $35 million to selling shareholders as a dividend.
- Equity value drops to $50 million.
- A management team plus a private equity partner invests $30 million for 60% of the stock.
- The original shareholders walk away with $65 million in cash and retain 40%.
The result: Liquidity today. Continued upside. A smooth path to full transition over time.
Scenario Two: Expansion Capital
An owner wants to enter a new market, build a second facility, or fund an acquisition, but the bank has reached its comfort level on debt.
How it works:
- Existing debt: $25 million.
- Capital needed: $20 million for expansion.
- Outside investors value the business at $75 million. Subtracting $25 million in debt yields a pre-money equity value of $50 million.
- Post-money equity value: $70 million.
- The new investor receives roughly 29% of the stock in exchange for $20 million.
The result: Capital to grow. A partner with M&A experience and reserves for future moves. The owner keeps majority control.
Scenario Three: Balance Sheet Flexibility
An owner who borrowed aggressively a few years ago is facing a debt maturity in a higher-rate environment. Refinancing the full amount is expensive, or unavailable on acceptable terms.
How it works:
- Outstanding debt: $45 million.
- Current EBITDA: $17.5 million.
- New investors value the business at 7x EBITDA, or $122.5 million.
- Pre-money equity value: $77.5 million.
- A $25 million equity investment yields the investor roughly 24%.
- Proceeds pay down debt and reduce the refinancing burden to $20 million.
The result: A stronger balance sheet, room to operate, and an equity partner aligned with the next chapter of growth.
Why recaps are having a moment
Three forces are driving activity:
- Succession is reaching scale. A generation of founder-owners is approaching retirement together. Many want partial liquidity now and a path to a full exit over five to seven years.
- Private credit has expanded the toolkit. Non-bank lenders have moved into the middle market, giving owners more financing options than a generation of bankers could have imagined.
- Buyers are structuring creatively. Minority recaps, structured equity, and preferred capital allow owners to keep meaningful ownership while bringing institutional partners to the table.
How Mirus helps
Recap structures vary widely, and the right one depends on owner goals, business performance, and market conditions. For close to 40 years, Mirus Capital Advisors has helped middle-market business owners evaluate options, model outcomes, and execute transactions with the right partners.
Talk to us about your options. Contact Alan Fullerton at fullerton@merger.com, or visit merger.com.
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