Mergers & Acquisitions

Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Private Equity Recapitalization

Definition

A reorganization of a company’s capital structure, including the debt and equity, whereby a private equity firm purchases less than 100% of a company, leaving the seller with a remaining interest in the company.

Example

For example, a private equity group may purchase 80% of a company while the seller retains a 20% interest. The private equity firm and the seller then build up the business and both the seller and the PEG fully exit in three to seven years.

Tips

The goal of a recap is for the seller to take chips off the table. The seller may be too heavily invested in their business and may wish to take some cash out of the business, but they may not wish to sell 100% of the business because there is still room for growth in the company. A recap reduces the owner’s risk and brings in a sophisticated third party that is experienced in scaling up companies and then exiting them at a higher value than the initial purchase price.