Deal structure
A dividend recapitalization is when a company borrows money and pays it out to its owners as a dividend, without selling the business.
In a dividend recapitalization, the company takes on new debt and uses the cash to pay its owners. No one buys the company. The owners get cash and keep their ownership.
For example, a company with $5 million of EBITDA borrows $10 million and pays that out to its owners. The owners hold the same shares, but the company now carries more debt.
It can give liquidity without a sale. The risk is that debt must be repaid from cash flow. A slow year can strain the company. Lenders also set limits, so check the terms with care.
This differs from a standard recapitalization with an outside investor. There, an investor buys a stake. Here, the company funds the payout with debt. Some private equity owners use dividend recaps too, but you should not expect one in any deal.
Talk with your lender, lawyer and tax adviser. Read about options in recapitalization. Related: leveraged buyout.
Related terms
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