Recapitalization vs Full Sale of a Business: Mechanics, Tax Math, and Who Buys Each (2026)

Owners considering an exit usually start with a binary question: sell or don’t sell? The smarter question is three-way: full sale, recap, or stay. Each has different mechanics, different timelines, different financial outcomes, and different lifestyle consequences. Owners who frame the decision as binary often default to whichever option a banker pitched them first — and that’s rarely the structure that fits their specific situation. Recap and full sale aren’t different ways to do the same thing. They’re different transactions producing different outcomes. For a deeper look, see our guide on partial sale vs full sale which exit actually makes more sense.

This guide is for owners with $2M+ EBITDA businesses weighing recap vs full sale. Below $2M EBITDA, the recap market is thin — PE recap funds typically want $2M+ EBITDA to justify the deal cost and post-close governance overhead. Above that threshold, recap is a real and well-developed alternative to full sale. We’ll walk through how recap mechanics actually work, the after-tax math, who buys recaps vs full sales, when each form fits, and the trade-offs owners consistently underestimate.

The framework draws on direct work with 76+ active U.S. lower middle market buyers. We’re a buy-side partner. The buyers pay us when a deal closes — not you. That includes the PE platforms, family offices, growth equity investors, and strategic acquirers who participate across the recap and full-sale spectrum. The goal of this article isn’t to push you toward either path — it’s to give you an honest read on what each transaction actually involves so you can decide which fits your situation.

One realistic note before you start. Recap is fashionable. PE bankers will pitch you a recap because it lets them deploy capital into a growing business with an aligned operator — that’s their dream deal. That doesn’t mean it’s your dream deal. The owners who get the most value from a recap are the ones who genuinely want to drive the business for another 4-6 years under PE governance. Owners who recap because it sounded good often regret it within 24 months.

“The honest framing isn’t ‘recap vs full sale.’ It’s ‘do you have 4-6 years of meaningful growth left in this business, and do you want to drive it under new ownership for that period?’ If yes, recap. If no, full sale. The owners who get this wrong recap when they should have exited — and end up resentful three years in, watching the PE timeline force a decision they didn’t want.”

Key Takeaways

• Recap = partial equity sale (typically 50-70% to a financial buyer) with rollover equity (30-50%) retained by the owner. Full sale = 100% equity transfer.
• Recap multiples typically run 0.25-0.5x lower than comparable full-sale multiples because buyer shares upside with rollover holder.
• After-tax math: recap nets roughly 50-60% of full-sale cash, plus rollover equity (deferred tax) for the second bite.
• Recap buyer pool is dominated by PE platforms (60-70% of recap volume) with family offices and growth equity making up most of the rest.
• Strategic buyers rarely do recaps because they want full ownership for synergy capture and integration.
• Recap timeline post-close: 4-6 year hold under PE governance, ending in a forced second exit. Full sale timeline post-close: 3-12 month transition, then done.

What ‘recapitalization’ actually means in the LMM context

‘Recapitalization’ is a broad term that’s used loosely — before going to market, you should know which form your situation actually contemplates. In the LMM context, the most common form is the ‘equity recap’ or ‘sponsored recap’: a financial buyer (usually PE, sometimes family office or growth equity) buys 50-70% of the equity, the owner rolls over 30-50%, and the new majority owner takes operational and governance control while the owner continues to operate or transitions out over 12-36 months. The deal restructures the cap table (recapitalizes) the company — hence the term.

Equity recap vs dividend recap. ‘Dividend recap’ is a different transaction: the company takes on new debt (or refinances existing debt at higher leverage), then uses the new debt proceeds to pay a one-time dividend to shareholders. The owner keeps 100% equity but the business is now more leveraged. This is a liquidity tool, not a sale — it doesn’t bring in a partner, doesn’t change governance, and doesn’t change the cap table. We’ll cover both, but the ‘recap vs full sale’ conversation almost always means ‘equity recap vs full sale.’

Equity recap mechanics, step by step. Step 1: financial buyer agrees to enterprise value (EV) for the business, typically 4.5-6.5x LMM EBITDA. Step 2: buyer puts up 30-50% of EV as equity check; remainder funded by senior debt and (sometimes) seller note. Step 3: buyer purchases 50-70% of equity from owner; owner’s remaining 30-50% rolls over into the new HoldCo at the same per-share price. Step 4: new HoldCo formed with PE majority equity, owner rollover equity (often common stock pari passu), senior debt, and any seller financing. Step 5: post-close, the new entity operates under PE governance through a 4-6 year hold to a second exit.

Why ‘recap’ instead of ‘sale’? Two reasons. First, the cap table is restructured (recapitalized) with new debt and new equity holders — it’s technically a recapitalization event. Second, ‘recap’ signals to the owner that they’re not exiting fully — rollover equity continues. The terminology matters because owners react differently to ‘sale’ vs ‘recap.’ Banker language matters more than legal substance for some owner conversations.

After-tax math: $5M recap vs $5M full sale, worked out

The clearest way to see the trade-off is to model the same enterprise value as both a full sale and a 50% recap. Worked example: $1M EBITDA business at 5x = $5M EV. Owner’s basis is $500K. Federal LTCG = 20%, state cap gains = 5%. (Numbers simplified; actual structures involve more nuance, but the directional math holds.)

Scenario A: full sale. EV = $5M. Owner receives $5M cash. Gain = $5M – $500K basis = $4.5M. Tax on gain = $4.5M × 25% (federal + state) = $1.125M. After-tax cash = $5M – $1.125M = $3.875M, call it ~$3.95M after some allocation efficiency. Owner walks away with $3.95M after-tax. Done.

Scenario B: 50% equity recap with 50% rollover. EV = $5M (the recap multiple may be 0.25-0.5x lower in practice; we’ll keep it equal for clarity). Owner sells 50% of equity for $2.5M cash, rolls over 50% worth $2.5M into the new HoldCo. Gain on the sold portion = $2.5M – $250K (50% of basis) = $2.25M. Tax on gain = $2.25M × 25% = $562K. After-tax cash from the recap = $2.5M – $562K = ~$1.94M. Plus $2.5M of rollover equity (no tax due now — deferred). Total realized today: $1.94M after-tax cash + $2.5M deferred-tax rollover.

Now project the second bite. Assume PE holds 5 years, business grows EBITDA from $1M to $1.8M (12% CAGR), exit multiple holds at 5.5x = $9.9M EV. Owner’s 50% rollover share (assuming pari passu common): $4.95M. Less PE preferred-stock accrual or debt accrual eating into the common waterfall: depends on structure, but typically takes ~10-15% of the common bucket in moderate-growth cases. Realistic rollover value at second exit: ~$4.0-4.5M. Tax on second exit (most of the gain is now in the rollover): ~$1M. After-tax cash from second exit: ~$3.0-3.5M.

Total after-tax across both bites in the recap scenario. First bite: $1.94M cash. Second bite: $3.0-3.5M cash. Total after-tax: $4.95-5.45M. Compare to full-sale scenario: $3.95M after-tax today, no second bite. The recap delivers $1-1.5M more after-tax in the moderate-growth case — but five years later. The trade-off is liquidity timing and risk: recap delivers more if the business grows, less if it doesn’t. The full sale delivers a known number today.

Where the math flips against recap. If the business is flat at exit (EBITDA stays at $1M, multiple compresses to 4.5x = $4.5M EV in 5 years), the rollover share is ~$2.0M with PE accrual eating in — close to a wash. After-tax cash from second exit: ~$1.6M. Total recap after-tax: $1.94M + $1.6M = $3.54M, less than the full sale’s $3.95M today. In a flat case, recap underperforms full sale by 10-15% with five years of risk — not a good trade.

Who actually buys recaps vs full sales

Recap and full sale buyer pools overlap but aren’t identical. Some buyers do both, depending on the deal. Some buyers strongly prefer one over the other. Understanding which buyer types are likely to engage in your specific recap vs full-sale process changes how you market and which structure you should pursue.

Recap buyers, ranked by volume. (1) PE platforms: 60-70% of recap volume. The classic PE thesis is ‘buy a great business, partner with the operator, grow it 1.5-2x in EBITDA, exit in 4-6 years.’ Recap with rollover is the canonical PE structure for this thesis. (2) Family offices: 15-20% of volume. Patient capital, often willing to do recaps with longer hold horizons (5-10+ years). (3) Growth equity / structured equity: 5-10%. Particularly active in software, healthcare, and tech-enabled services recaps. (4) SBICs: 3-5%. Often combined with debt-heavy structures.

Full-sale buyers, ranked by volume. (1) Strategic acquirers: 30-40% of LMM full-sale volume in many industries. Strategic buyers want full ownership for synergy capture, integration, and IP / brand consolidation. They rarely do recaps. (2) PE platforms (full buyout, no rollover): 25-35%. PE buyers will do full buyouts when the seller wants to exit fully and the business doesn’t need an aligned operator. (3) Family offices: 15-20%. (4) Search funders / independent sponsors: 10-20% (more in sub-$1M, less above $5M). (5) ESOPs: 3-5% of full-sale volume.

Why strategic buyers don’t do recaps. Strategic acquirers buy your business to integrate it with theirs — merge customers, consolidate operations, eliminate duplicate functions, harvest synergies. None of that works with a rollover holder still operating the business semi-independently. Strategic buyers also rarely have the capital structure to support PE-style preferred equity / debt waterfalls. If the right buyer for your business is a strategic, recap is probably not the right structure. Full sale fits the strategic buyer model.

Why PE strongly prefers recaps in many situations. PE’s value-creation thesis depends on operator alignment. Full buyouts require PE to install a new CEO, which is expensive (compensation packages of $500K-$1.5M base + significant equity), risky (new CEOs miss in 30-50% of cases), and time-consuming (3-6 month search, 6-12 month integration). Recap with rollover keeps the existing operator with skin in the game — cheaper, faster, lower-risk for PE. That’s why PE bankers consistently steer owners toward recaps.

When recap wins: the conditions that make second-bite math real

Recap is the right path when four conditions align. If all four are present, recap typically beats full sale on after-tax outcome and on owner satisfaction. If two or three are present, recap is plausible but the math is closer. If only one or none, full sale is almost always the better path.

Condition 1: meaningful growth runway, 3-5 years. The second bite only beats the full sale today if the business grows. Specifically, you need EBITDA growth of 8-15% CAGR over the PE hold to make recap math compelling. If your business is growing 20%+ today, recap math is strongly favorable. If you’re growing 5-10% with a clear ceiling, recap is marginal. If you’re flat or declining, recap is worse than full sale.

Condition 2: owner energy and willingness to operate under PE. PE governance adds 10-20% of CEO time to financial reporting, board meetings, and investor communication. PE pressure to grow EBITDA, hit milestones, and prepare for second exit is real. Owners who are energy-decaying, resistant to oversight, or eyeing retirement struggle under PE governance. Owners who genuinely want to grow and welcome a sophisticated partner thrive. Be honest with yourself.

Condition 3: liquidity needs are partial, not total. Recap delivers ~50-60% of full-sale cash today. If you need full liquidity for retirement, real estate, or other major commitments, recap doesn’t solve the liquidity problem. If you want $2-3M of liquidity to fund specific personal goals while keeping the bulk of your wealth in the business’s upside, recap fits. Match liquidity need to structure.

Condition 4: capital structure can support PE leverage. Recap deals are typically funded with 40-60% senior debt. Your business needs to support the post-close debt service comfortably (debt service coverage ratio of 1.5x or better) without strangling growth investments. Cash-flow-stable businesses (recurring revenue, contracted backlog) handle this well. Cyclical or capital-intensive businesses can struggle.

When full sale wins: the conditions that point toward 100% exit

Full sale is the right path when the conditions for recap don’t hold — and there are several specific situations where full sale is unambiguously better even when recap is technically possible. Owners who default to recap because their banker pitched it (or because ‘keeping upside’ sounds appealing) often end up worse off than if they’d done a clean full exit. Recognizing the full-sale-wins conditions is as important as recognizing the recap-wins conditions.

Full-sale condition 1: owner is ready for the door. If you’re ready to retire, transition to a different career, or fully step back from operations, full sale is the right path. Recap commits you to 4-6 more years of operating under new governance. Owners who weren’t fully committed to that timeline at close consistently regret the recap by year 2 or 3 when the PE pressure to perform conflicts with their actual energy and life priorities.

Full-sale condition 2: business is mature with limited growth runway. If your business is at saturation in its market, has limited reinvestment opportunities, and the realistic 5-year EBITDA growth is 0-5% per year, the second-bite math doesn’t work. PE will still buy a mature business, but they’ll do it at a lower multiple and the rollover equity is unlikely to deliver meaningful upside. Take the full-sale check at peak.

Full-sale condition 3: the right buyer is a strategic. If your business has strategic value to a specific industry acquirer (geographic expansion, customer base, technology, distribution capability), the strategic buyer is almost certainly your highest-value buyer — and strategics don’t do recaps. Trying to force a recap structure with a strategic buyer either fails outright or leaves significant value on the table. Match the structure to the buyer.

Full-sale condition 4: market window is at peak. If the macro stack and your business’s trajectory align for a peak sale window today, sell into it. Recap commits you to a second exit in 4-6 years — into a market window you can’t predict. Selling at peak today and capturing the full-sale multiple often beats recapping at a slightly lower current multiple and hoping the next exit window cooperates.

Full-sale condition 5: capital structure or industry doesn’t support PE leverage. Cyclical industries, capital-intensive businesses with heavy ongoing capex, businesses with concentrated customer or supplier risk, businesses in regulated or pre-revenue states — all can struggle to support the senior debt that funds typical recap structures. If the post-close debt load would compromise growth investment or operating flexibility, full sale to a strategic or to PE without high leverage may be the better path.

Recap multiple discount: why buyers pay slightly less for the same business

Recap multiples typically run 0.25-0.5x EBITDA below comparable full-sale multiples. The discount exists because the buyer is sharing upside with the rollover holder. In a full sale, the buyer captures 100% of subsequent value creation; in a recap, the buyer captures 50-70% (their majority share). Rational buyers price for the share they’re actually getting, not the headline EV.

How the discount shows up. If a $2M EBITDA business would clear at 6x ($12M) in a full sale, the same business in a recap context typically clears at 5.5-5.75x ($11-11.5M EV). The owner’s 50% rollover share is therefore $5.5-5.75M (less than the $6M they’d hypothetically claim at the full-sale multiple). The 0.25-0.5x discount on the recap is not all bad — it’s baked into the structure that gives you the second bite. But it’s real, and you should account for it.

When the recap discount narrows. In hot industries with deep buyer pools (multiple PE firms competing for recap mandates), the discount can compress to 0-0.25x because buyers compete for the deal. In cold industries or for smaller businesses where only 1-2 PE firms are interested, the discount can widen to 0.5-1x. The discount is partly a function of competitive dynamics, not just structural.

Negotiating against the discount. The cleanest way to minimize the recap discount: run a competitive recap process where 3-5 PE firms compete for the mandate. This is where buy-side partnership matters — a partner who already knows which 3-5 PE firms are likely to engage in your specific deal can produce a competitive process without the 9-month sell-side cycle. The competitive dynamics narrow the discount.

Post-close life: what 4-6 years of PE ownership actually feels like

The biggest non-financial trade-off in a recap is the 4-6 years of life under PE governance. Owners who’ve never operated under institutional ownership are often surprised by the cadence, the pressure, and the cultural shift. Some thrive in it; some struggle. Knowing what to expect helps you decide whether recap fits your operating style.

Monthly board meetings and quarterly strategic reviews. PE-owned LMM businesses typically run monthly board calls (1-2 hours, financial review and operating updates) and quarterly strategic reviews (4-6 hours, deeper operating and strategic discussion). The CFO produces detailed monthly board packages: P&L, balance sheet, cash flow, KPIs, variance analysis, forward forecast. If you don’t have this discipline pre-close, you’ll need to build it — which is healthy operationally but adds 5-10% of CFO and CEO time.

Operating partner involvement. Most LMM PE firms have operating partners — experienced operators who’ve run portfolio companies before — who get involved in your business 1-2 days per week or 4-8 days per month. They’re typically valuable on financial discipline, KPI infrastructure, hiring senior leadership, and preparing for next exit. Owners who welcome the help thrive; owners who resent the oversight struggle. Personal fit with the operating partner is worth as much as the LP fit with the partner managing the deal.

Pressure to hit milestones. PE ownership comes with explicit growth targets and exit milestones. Year 1: usually focused on operational improvements (financial reporting, KPI infrastructure, leadership hiring). Year 2-3: growth initiatives (geographic expansion, product launches, M&A). Year 4-5: prep for second exit. Missing milestones isn’t fatal but it changes the conversation — CEO replacement, accelerated cost cuts, or pulling forward exit timing all become topics.

The shift in how decisions get made. Pre-recap: you decide. Post-recap: most operational decisions stay with you, but strategic decisions (M&A, major capital deployment, senior leadership changes, exit timing) are board decisions. The board includes PE majority, you, and possibly an independent director or two. Owners who’ve operated unilaterally for 20+ years find this a meaningful adjustment for the first 6-12 months, then it normalizes.

The exit clock. From day one, there’s a 4-6 year exit horizon. Every major decision is informed by ‘does this support a great exit in year 5?’ That’s helpful for prioritization but can constrain longer-term investments — multi-year R&D programs, brand-building investments with payback beyond exit horizon, customer relationship investments with long ramp. Owners who want to invest for 10-year horizons may find the 5-year exit clock frustrating.

Recap vs full sale: a structured decision framework

Score your situation across six factors. The composite score points clearly toward recap or full sale. Each factor scores -2 (strongly toward full sale) to +2 (strongly toward recap). Sum the scores. +5 or higher: recap is the better path. -5 or lower: full sale. Between -4 and +4: the decision is more nuanced, and your specific personal priorities matter as much as the math.

Factor 1: growth runway. +2: 15%+ EBITDA CAGR plausible over next 5 years with documented opportunities. +1: 8-15% CAGR plausible. 0: 5-8% CAGR. -1: 0-5% CAGR. -2: flat or declining.

Factor 2: owner energy and willingness to operate under PE. +2: full energy, eager to grow, comfortable with oversight. +1: solid energy, willing to engage with partner. 0: mixed. -1: ready to step back. -2: ready to retire fully.

Factor 3: liquidity needs. +2: partial liquidity needed (specific personal goals). +1: moderate liquidity, comfortable leaving rest in business. 0: balanced. -1: most of net worth needs to be liquid. -2: full liquidity needed for retirement.

Factor 4: buyer fit. +2: strong PE / family office fit, no clear strategic interest. +1: PE plausible, strategic possible but not dominant. 0: balanced. -1: strategic likely best buyer. -2: clear strategic with high synergy value.

Factor 5: capital structure suitability. +2: stable cash flow, low capex, supports senior debt comfortably. +1: solid cash flow with moderate capex. 0: mixed. -1: cyclical or high capex constrains leverage. -2: business cannot support PE-style leverage.

Factor 6: market timing. +2: current window is mid-cycle, room to grow into a stronger window in 4-5 years. +1: similar. 0: balanced. -1: at peak today, future window uncertain. -2: clear peak today, strong reasons to capture full sale.

Worked example: recap-favorable case. $2M EBITDA HVAC business, growing 18% YoY, owner is 52 and energized, wants $3-4M liquidity, PE-friendly industry, recurring-revenue contracts support leverage, current window is mid-cycle. Scores: +2, +2, +1, +2, +2, +1 = +10. Strong recap signal.

Worked example: full-sale-favorable case. $3M EBITDA distribution business, flat for 3 years, owner is 67 and ready to retire, wants $8M+ for retirement, primary buyer interest is a strategic competitor, capital intensive (heavy fleet capex), industry is at peak consolidation. Scores: -2, -2, -2, -2, -1, -2 = -11. Strong full-sale signal.

Common recap-vs-full-sale mistakes

Mistake 1: defaulting to whatever the banker pitched. Bankers default to the structure that maximizes their fee or fits their relationships. PE bankers pitch recaps. Strategic-focused bankers pitch full sales. The right structure for you is the one that fits your situation, not the one your banker prefers. Get a second opinion before committing.

Mistake 2: choosing recap because ‘keeping upside’ sounds appealing. Rollover equity is upside-with-strings. The strings include 4-6 years of PE governance, milestone pressure, and a forced second exit on the PE timeline. If you’re not genuinely energized to operate under those strings, the upside is worth less than it looks. Don’t let the second-bite narrative override an honest read on your own energy and priorities.

Mistake 3: not modeling the rollover under bad scenarios. Owners model the rollover at the planned 1.5-2x EBITDA growth case and see big numbers. Few model the rollover under flat-EBITDA, multiple-compression, or delayed-exit scenarios. The bad scenarios are 30-40% of the probability distribution — not edge cases. Model them honestly.

Mistake 4: choosing full sale because recap sounds ‘complicated.’ The reverse mistake. Recap is structurally more complex than full sale — more documentation, more governance, more terms — but the complexity is well-managed by competent counsel. Owners who avoid recap purely because it’s ‘more complicated’ sometimes leave significant value on the table when their situation actually fits the recap model.

Mistake 5: not negotiating the rollover terms. The rollover-equity terms (waterfall structure, drag-along, tag-along, anti-dilution, voting rights) materially affect the realized value of the rollover. PE firms have standard term sheets that are weighted toward them. Owners who accept the standard sheet without negotiation often discover the rollover is worth 20-30% less than they expected. Get experienced counsel and negotiate the rollover terms specifically.

Mistake 6: assuming the full sale price equals the recap EV. Recap multiples typically run 0.25-0.5x below comparable full-sale multiples because the buyer shares upside. Owners who anchor on a full-sale multiple and expect the same in a recap are surprised by the discount. Build the financial comparison correctly: full sale at full multiple vs recap at recap multiple, comparing after-tax outcomes including the second bite.

How to position your business depending on the path

Recap and full sale require different positioning — the same CIM doesn’t work for both processes. Buyer underwriting is different. The story you tell, the financial package you build, and the operating commitments you make should match the path you’re pursuing. Owners running a hybrid ‘maybe recap, maybe full sale’ process often confuse buyers and produce worse outcomes than a focused process either way.

Position for recap: emphasize growth runway and operator continuity. PE recap buyers underwrite the next 4-6 years. Position the business’s 5-year growth thesis with specific opportunities, capital needs, and milestones. Emphasize the operator team’s ability to execute (you plus second-tier leadership). Articulate why you want partial liquidity now and continued involvement — the genuine motivation matters because PE buyers screen for owner alignment. Show capital structure capacity.

Position for full sale to PE: emphasize stability and replaceable operator. PE buyers doing full buyouts (no rollover) need confidence that the business operates without the founder. Position the business with a clear ‘day after close’ plan: who runs it, what changes, how the customer / employee transition is managed. Emphasize stability of cash flow, customer base, and team rather than aggressive growth narrative.

Position for full sale to strategic: emphasize synergy value. Strategic buyers pay for what your business does for theirs — not for standalone enterprise value. Position around the specific synergies a strategic acquirer can capture: geographic coverage, customer relationships, technology, capacity, talent. Tailor outreach to specific strategics whose strategic gaps your business fills. The strategic full sale is often the highest-value outcome — if you can identify the right buyer.

Position for full sale to family office: emphasize stability and succession. Family offices want stable, cash-flow-generating businesses with sustainable competitive positions. They’re patient buyers who can accept lower growth in exchange for lower risk. Position the business as a long-term hold opportunity with stable returns rather than a transformation play. Family offices often pay competitive multiples for businesses that don’t fit the PE growth thesis.

Conclusion

Recapitalization vs full sale isn’t a question of which is ‘better’ — it’s a question of which fits your situation. Recap delivers ~50-60% of full-sale liquidity today, plus rollover equity for a second bite in 4-6 years. The math beats full sale when the business grows during PE ownership; underperforms when the business is flat. Recap also commits you to 4-6 years of operating under PE governance, with milestone pressure, monthly board meetings, and a forced second exit on the PE timeline. Full sale delivers known liquidity today and a clean break. The decision depends on growth runway, owner energy, liquidity needs, buyer fit, capital structure, and market timing — six factors that point clearly toward one path or the other when you score them honestly. The owners who get this right run the framework, model both paths under multiple scenarios, and make a decision they can live with for the next 5 years. And if you want a real-time read on which path your specific business actually fits — with current buyer-side data instead of generic frameworks — talk to someone who already works with the buyers. We’re a buy-side partner — the buyers pay us, not you, no contract required.

Frequently Asked Questions

What’s the basic difference between a recap and a full sale?

Recap: you sell 50-70% of the equity to a financial buyer (usually PE) and roll over 30-50% as continuing equity in the new HoldCo. The new majority owner takes operational control; you continue to operate under their governance for a 4-6 year hold to a second exit. Full sale: you sell 100% of the equity. You may stay on for a transition period (3-12 months) but the deal is final. Recap = partial liquidity + second bite; full sale = full liquidity + clean break.

What’s the after-tax difference between a $5M recap and a $5M full sale?

Approximate after-tax math at $5M EV with $500K basis: full sale = ~$3.95M after-tax cash. 50% recap = ~$1.94M after-tax cash + $2.5M rollover (deferred tax). The recap delivers about half the upfront cash. Whether the rollover’s second bite makes up the gap depends on growth: in a moderate-growth case (12% CAGR), the second bite adds ~$3-3.5M after-tax, beating full sale total. In a flat case, the rollover second bite is closer to $1.5-2M, underperforming full sale.

Why do recap multiples run lower than full-sale multiples?

Buyers in a recap share future upside with the rollover holder, so they price for the share they’re actually getting. The discount is typically 0.25-0.5x EBITDA, narrowing in competitive recap processes (multiple PE bidders) and widening in less competitive ones. The discount is the structural cost of the second bite — you give up some upfront price in exchange for retained upside.

Who buys recaps?

PE platforms (60-70% of recap volume), family offices (15-20%), growth equity / structured equity (5-10%), and SBICs (3-5%). Strategic buyers rarely do recaps because they want full ownership for synergy capture and integration. If your most likely buyer is a strategic, recap probably isn’t the right structure.

When does a recap actually beat a full sale on after-tax math?

When the business grows EBITDA at 8-15%+ CAGR over the PE hold period, the multiple holds or expands, and the rollover terms are reasonable. In moderate-growth cases (12% CAGR), recap typically beats full sale by $500K-$1.5M after-tax. In flat or low-growth cases, full sale wins. Recap is a bet on growth — positive expected value when growth runway is real, negative when it isn’t.

What does life look like under PE ownership?

Monthly board meetings, quarterly strategic reviews, detailed monthly financial reporting, operating partner involvement (1-2 days/week typical), explicit milestone pressure, and a 4-6 year exit clock. Owners who welcome the discipline and partner with PE thoughtfully often grow the business significantly. Owners who resent oversight, miss milestones, or have personality conflicts with the operating partner can struggle. Personal fit matters as much as financial fit.

Can I do a recap and stay CEO indefinitely?

Most LMM recaps include a 4-6 year exit clock that’s not optional — the PE firm has fund-life obligations and will exit at the planned horizon. You can usually stay CEO through the second exit (if performance is on track) but you can’t prevent the exit itself. If you want indefinite ownership, look at family offices (5-10+ year horizons), SBIC structures (debt-style with longer holds), or stay full-private.

What’s the difference between an equity recap and a dividend recap?

Equity recap: you sell 50-70% of equity to a financial buyer; new owners take governance and capital structure changes. Dividend recap: the company takes on new debt and pays a one-time dividend to existing shareholders; you keep 100% equity but the business is more leveraged. Dividend recap is a liquidity tool for owners who don’t want a partner. It’s typically limited to 2-4x EBITDA of new debt and works only for businesses with stable cash flow.

Should I take rollover equity in a recap or push for more cash?

Depends on conviction in growth. If you genuinely believe the business will grow 1.5-2x in EBITDA over the PE hold, more rollover (40-50%) maximizes second-bite value. If you’re less certain about growth or want lower risk, more cash (with 20-30% rollover) is the more conservative path. Standard recap structures default to 30-40% rollover; that’s the typical balance point.

What rollover terms should I negotiate carefully?

(1) Waterfall structure: how preferred / debt accrual eats into the common at exit. (2) Drag-along and tag-along provisions on second exit. (3) Anti-dilution protection if PE raises additional equity. (4) Voting rights on major decisions. (5) Information rights post-close. (6) Vesting / forfeiture mechanics if you leave. Standard PE term sheets are weighted toward the PE firm; experienced counsel can negotiate 5-10% better economics on the rollover with focused negotiation.

Is recap right for my $1M EBITDA business?

Probably not in 2026. Most PE recap funds want $2M+ EBITDA to justify the deal cost and post-close governance overhead. At $1M EBITDA, your better partial-sale options are SBIC structures (subordinated debt with warrants), family-office minority investments, or growing the business to the $2M threshold before pursuing recap. Below the threshold, the recap process struggles to find capable buyers.

How do I know if my industry supports recaps?

Check three things: (1) Is there active PE investment in your specific industry / segment? (Cap-IQ, PitchBook, trade press). (2) Are similar-sized businesses doing recap deals or full-sale deals predominantly? (3) Is your industry growing (recap-favorable) or mature (full-sale-favorable)? Industries with strong recap activity in 2026 include healthcare services, home services trades, vertical SaaS, and specialty distribution. Industries with primarily full-sale activity include retail, restaurants, traditional manufacturing, and most consumer-discretionary.

How is CT Acquisitions different from a sell-side broker or M&A advisor?

We’re a buy-side partner, not a sell-side broker. Sell-side brokers represent you and charge you 8-12% of the deal (often $300K-$1M) plus monthly retainers, run a 9-12 month auction process, and require 12-month exclusivity. We work directly with 76+ buyers — including PE platforms doing recaps and full buyouts, family offices, growth equity, search funders, and strategic acquirers — who pay us when a deal closes. You pay nothing. No retainer, no exclusivity, no contract until a buyer is at the closing table. We move faster (60-120 days from intro to close) because we already know who the right buyer is rather than running an auction to find one.