When it’s time to cash out of your company, you may think that selling 100% of your company is the only way to achieve personal liquidity. Fortunately, you actually have several options depending on how much ownership control you would like to retain.

Read below to explore 7 effective ways to achieve personal liquidity while still retaining your desired level of ownership.

   Majority Recapitalization

A majority recapitalization is a partial liquidity option, also known as a “partial sale”, in which the company owner sells a majority stake in the company but still retains some material ownership. In a majority recapitalization, the company owner may still continue to run the company but will now have access to the financial and operational support of the buyer that invests in the majority stake.

To understand why a majority recapitalization can be a win-win situation for both the company owner and the buyer, it’s important to understand the goals of the buyer. When a buyer most likely a Private Equity or institutional buyer purchases a majority stake in a middle-market company, they are doing so with the intention of growing the company and later selling it at a higher price to either a strategic buyer or another private equity firm. When this later sale occurs, the company owner receives what is known as a “second bite of the apple.” In other words, the company owner receives liquidity at the initial investment, and because you retain some ownership stake in the company, you receive additional liquidity at the later sale of the company – often at a higher valuation (and therefore, higher proceeds). You get to participate in 2 liquidity events. The only thing better than one liquidity event, is having 2 of them!

If your goal is to maximize liquidity while retaining some ownership & participate in 2 liquidity events, consider pursuing a majority recapitalization. This is our most popular deal structure.

 Minority Recapitalization

Similar to a majority recapitalization, a minority recapitalization is a partial sale in which the company owner sells a minority stake (usually 20-49%) in the company and retains majority ownership control. Minority recapitalizations can be an excellent source of both liquidity and capital to support the company’s future growth.

Just like a majority recapitalization, buyers generally purchase a minority stake in the company with the intention of growing the company and pursuing a future liquidity event (generally a sale to a strategic buyer or a different private equity group). Minority recapitalizations give you liquidity at the initial investment and again at the later sale of the company. You get to participate in 2 liquidity events.

If your goal is to get some liquidity while retaining majority ownership control & still participate in 2 liquidity events, a minority recapitalization might be the ideal liquidity option for you.

A debt dividend recapitalization is a lesser-known liquidity option that can be thought of as giving a company owner an advance on future earnings. This liquidity option allows the owner to pull cash out of the company by issuing new debt, allowing the owner to maintain their current level of control.

Debt dividend recapitalizations provide near-term liquidity and can establish lender relationships that can be leveraged in the future for additional capital needs and desires. Additionally, debt dividend recaps generally allow owners to avoid active equity investor input and governance in the operations and strategy of their company. However, the additional debt service requirements placed on the company and the potential loss of flexibility in the event of a future downturn should be carefully considered when evaluating this liquidity option.

If your goal is to achieve liquidity while retaining your current level of ownership control, a debt dividend recapitalization could be the creative liquidity option you’re looking for.

The proceeds from a sale-leaseback transaction can be used to refinance or pay off debt, be used for personal liquidity, can be used to finance growth initiatives.

Another great thing about this strategy is, it can be combined with the other liquidity options mentioned on this page. This stacked liquidity strategy helps unlock massive liquidity for businesses.  For example a business owner can choose to do a majority capitalization & combine it with a sale leaseback of his corporate owned real estate. This strategy would greatly increase his liquidity event. This strategy if used alone would allow the business owner to retain 100% ownership of their company. This strategy can be a non-dilutive form of financing, which simply means you won't give up any equity in the company.

A Recapitalization + Real estate sale leaseback = Massive liquidity. Just like we mentioned above, a business owner can choose to do a minor or major recapitalization and sell off their corporate owned real estate via a real estate sale leaseback transaction to increase their liquidity. Combining a recapitalization and a sale lease back will help a business owner achieve massive liquidity. 

Recurring Revenue Cash Advance - for business owners who have contracted monthly or annual recurring revenue streams - you can now turn those contracts into upfront cash.. We can get you cash for those recurring revenue streams. You can get you up to 95% cash advance on those recurring revenue streams. We have hedge fund and other institutional investors who will bid on them to acquire them. You can add this non - dilutive form of financing to the other options mentioned above to greatly increase your liquidity event. We can fund up to $20 Million with this type of funding.

ESOP TRANSACTIONS - Sometimes a seller would rather sell their company or a portion of their company to their employees instead of a competitor or a PE Fund. This strategy is called an Employee Stock Ownership Plan - (ESOP). This transaction will enable a seller to get liquidity by selling to his employees via an esop transaction. Legally, you can only sell at Fair Market Value (appraised by an independent appraiser), it also comes with amazing tax benefits.  The tax benefits are so good a fair market value deal in some cases becomes way above market value in in after-tax proceeds.

1. Sellers in a C corporation can get a 100% tax deferral: In C corporations, if the ESOP acquires a minimum of 30% of the company, the seller can reinvest 100% of the proceeds from the sale in other securities and defer any tax on the gain forever. 100% Tax Free. These tax savings can be very significant. A seller recently sold via an ESOP and saved $15 Million in taxes by using this strategy.  If that seller sold to a strategic buyer or PE Fund he would have a $15 Million capital gains tax liability post sale. By selling to his employees via an ESOP he saved $15 Million in taxes. That's $15 Million that would have been paid in taxes, but by using this plan that capital was reinvested in qualified replacement property according to section 1042 of the Internal Revenue Code (“IRC”) 
2.  In S corporations, the percentage of ownership held by the ESOP is not subject to income tax at the federal level (and usually the state level as well): That means, for instance, there is no income tax on 30% of the profits of an S corporation with an ESOP holding 30% of the stock, and no income tax at all on the profits of an S corp 100% owned by the ESOP. Using this strategy for an S Corp can turn your business into an entity that pays no Federal income tax.

Sellers & even Private Equity funds are now using ESOPS as exit strategies for their companies to get liquidity and shield their after-sale proceeds from capital gains taxes - they then use that saved capital to re-invest in other portfolio companies.

At Crown Star Mergers & Acquisitions, we’re passionate about educating company owners about the numerous options they have to achieve their goals for growth, ownership and liquidity. No matter your goals, we are here to help you understand the possibilities and we’re relentlessly focused on creating a wonderful liquidity event for you.

Most business owners net worth is tied to their business. In this day and age, it's not wise to have a large portion of your net worth tied to one asset. These liquidity events help business owners achieve massive liquidity to diversify their wealth into other income producing assets like commercial real estate or help prepare for Retirement. Basically, we help middle market business owners receive generational wealth in a short time frame. Our liquidity events can be viewed as A Private IPO for shareholders.

Crown Star Mergers & Acquisitions goal is to inject $10 Million - $100 Million into each middle market business we help.

If your business would be interested in having a $10 Million - $100 Million Dollar Liquidity event, feel free to reach out.

Contact us today to learn more about growing or selling your company. We’re here to help you achieve your goals.