Recapitalisation
Definition
A restructuring of a company's capital structure, typically involving a significant change in the mix of debt and equity, without changing the company's total enterprise value. In private equity, dividend recapitalisations (issuing new debt to fund a special dividend to equity holders) are a common mechanism for returning capital to investors prior to exit. Recapitalisations may also be used to bring in new investors, deleverage a distressed balance sheet, or prepare a company for sale.
Complementary Terms
Concepts that frequently appear alongside Recapitalisation in practice.
A transaction in which existing shareholders sell their equity to new investors rather than the company issuing new shares. Secondary sales provide liquidity to founders and early investors without diluting other shareholders or changing the company's capitalisation.
A hybrid form of capital that combines elements of debt and equity, typically structured as subordinated debt with equity warrants or conversion features. Mezzanine financing is often used in leveraged buyouts, growth capital, and recapitalisations, and sits between senior debt and equity in the capital structure.
A provision that allows majority shareholders (or lead investors) to force minority shareholders to join in the sale of the company on the same terms. Drag-along rights prevent minority holders from blocking an exit that the majority supports.
The weighted average cost of capital, representing the blended rate of return a company must earn on its assets to satisfy both debt holders and equity investors. WACC is used as the discount rate in DCF valuations and as a hurdle rate for investment decisions.
A business in which a private equity, venture capital, or growth equity fund has invested. Portfolio companies receive not only capital but also strategic support, operational guidance, and governance oversight from the fund, with the aim of accelerating value creation and achieving a profitable exit.
A financial leverage ratio calculated by dividing total debt by total shareholders' equity, indicating the relative proportion of debt and equity financing in a company's capital structure. A higher ratio indicates greater financial leverage and potentially higher financial risk, while a lower ratio suggests more conservative financing.
A financial metric measuring the proportion of debt in a company's capital structure relative to its earnings, equity, or assets. The most common leverage ratios in corporate finance and lending include net debt to EBITDA, debt to equity, and debt to total assets.
The total value of a company's or fund's assets minus its liabilities. For investment funds, NAV represents the per-share or per-unit value.
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