Diversifying Wealth: How Non-control Preferred Equity recapitalization can be an ideal
solution for some business owners
Many private business owners throughout North America are entering a stage of life where exploring an option of “taking some chips off the table” may be the right solution for themselves and their family. Experiencing a meaningful liquidity event and retaining control of their business is not a typical option in the world of private equity. This is where Alaris’ Non-Control Preferred Equity solution resonates. Businesses operating in the services sectors are entering an uncertain time in the capital markets where traditional recapitalizations will face potential headwinds from both an elevated caution in the debt markets and coinciding pressures on valuations. The result may be that one may wish to no longer pursue the sale of equity in their business as they feel they are being discounted for a black swan type of event. As an investment banking advisor, having another arrow in the quiver might just be the solution to winning an engagement or closing a transaction.
A Non-Control Preferred Equity recapitalization is one solution that allows owners to diversify their wealth, while maintaining both ownership and operating control of their businesses. Like a traditional majority recapitalization, the owner will experience a significant distribution of proceeds on the initial transaction. Alaris has traditionally aimed to recapitalize between 50% and 70% of the enterprise value in well managed privately-owned businesses but as opposed to traditional majority recapitalizations, under the Alaris preferred equity structure, the equity owner of the business has the ability to retain up to 100% of the common equity in the business. Alaris’ Preferred Equity capital is permanent in nature which allows business owners to focus on their business and control the time horizon, versus managing the business to their financial partner’s time horizon.
Alaris Preferred Equity checks multiple boxes: 1) creates a significant liquidity event to facilitate the diversification of wealth; 2) retention of operational control, strategic vision and ownership; 3) the benefit and discipline of having a partner to help with financial and strategic decisions; and 4) a partner that can fund future follow-on transactions. And most importantly, the business owner controls the time horizon of a future exit. When considering liquidity options, the Non-Control Preferred Equity recapitalization should be explored as an alternative to the tradition majority recapitalization, or to a full sale transaction. It might just be the right solution for a business owner who is curious to explore a future that is outside of the traditional private equity box.