Recapitalization for Business Growth
and Owner Diversification
A recurring issue common to many businesses is the lack of diversification in the owner’s investment portfolio. It is not unusual to find the value of the business comprising as much as ninety percent or more of the owner’s total net worth. In such a case, the owner’s wealth is at great risk if the business should encounter operating problems or experience an economic downturn.
Another issue facing business owners is fund-raising for capital acquisitions or business expansion. Often, such opportunities can be financed through traditional lending institutions. However, depending on specific circumstances, it may be necessary to go beyond traditional sources into private placement or equity markets.
In both cases, a recapitalization can be used to obtain the desired outcomes. Utilization of an employee stock ownership plan (ESOP) or the addition of an external equity investor can serve to accomplish current owner diversification goals or alternatively, to raise needed equity to pursue capital acquisition or business expansion opportunities.
Solid business valuation services are at the core of all successful recapitalizations. The Business Valuation Services Group of Grossman Yanak & Ford LLP has worked on numerous recapitalization projects, including ESOPs. In each case, our professionals have played a vital role in assisting management with key value-based decisions and feasibility analyses. We can also provide valuation services and reports where necessary to meet Department of Labor and Internal Revenue Service compliance requirements or outside investor needs.
A sample of recent projects include:
- Feasibility analysis and valuation report preparation to transfer 40% of business ownership to an ESOP on a tax-free basis, allowing for significant owner diversification
- Valuation services relating to the issuance of nonvoting shares in exchange for voting shares in an S corporation to partition value and voting rights for equity investor capital infusion
- Valuation services relating to the issuance of warrants, preferred stock and Class B common stock shares to partition value and voting rights for equity investor capital infusion for business acquisition