In addition to its core competencies in strategic sales, BDO Capital Advisors has a well-defined track record of facilitating and closing Leveraged Recapitalizations (“Recap(s)”). A leveraged recapitalization is a transaction where a private equity firm uses outside debt from a bank together with its own capital to buy a controlling interest in the ownership of a company. While creating substantial amounts of seller liquidity, this transaction type allows existing owners or management to continue their employment while also maintaining an economic interest in a newly formed acquisition company. This residual ownership interest allows the original sellers and core legacy management to share in the growth of the company upon its future sale or monetization event. Typically, the process of successfully completing a leveraged recapitalization mirrors that of a strategic sale with some notable exceptions:
The buyer universe interested in this type of transaction is primarily private equity ("PE") firms. With approximately 2,000 such companies, BDO Capital has access to and experience with many of the world's leading PE firms.
Leveraged recapitalizations can be very complicated transaction structures. Our professionals understand the advantages and disadvantages of hard equity financing. While traditional sales to a strategic acquirer normally result in a 100 percent monetization of the seller's ownership interest, a Recap normally requires future ownership interest in the newly formed acquisition company. The form of ownership can be in a security as simple as common stock or as complicated as redeemable or cumulative preferred stock with nonconventional pay-in-kind features. BDO Capital has experience in structuring and negotiating these securities having generated nearly $1 billion in shareholder value from these transactions.
Significant shareholder value can be gained or lost with equity promotes. Proper alignment of the PE firm and the seller's interest can result in large amounts of free equity and value to the client. BDO Capital has negotiated and procured equity promotes in all but a few of its recapitalizations.
Fees paid for corporate acquisition services normally include a monthly retainer and success fee. Importantly, the vast majority of fees are paid upon and conditional to the successful outcome of a transaction insuring proper alignment of interests.
Please see our recent article "Leveraged Recaps…More Cash?" for more information on this transaction type.