We bet you’ve heard other business owners discuss the proverbial ‘second bite of the apple’ with an investment and/or strategic group. What does it mean? The “second bite” or more formally, a majority recapitalization, is a transaction tool which helps owners grow well beyond their immediate capacity and experience to maximize their total seller benefit potentially more than one time from the same concept.
Your industry experience, R&D activity, and operational knowledge have value beyond the business sale price and terms. Many investment groups partner with the founder or current owner to create a buy-and-build platform operation. The initial investment, the ‘platform,’ establishes the foundation through which investors grow organically and through acquisition. Businesses can then develop their product lines and list of services provided, increase their geographical footprint, increase the base pool of talent, and streamline internal processes, procedures, and acquisition costs.
Business owners can monetize the transaction sale twice and, in some cases, multiple times. Business owners sell their majority interest in the business on the first transaction and retain a minority percentage post-closing with the new company. Along with the resources and professional experience investment partners bring to your operation, they’ll grow top-line revenue and, more importantly, bottom-line profitability while taking the daily operational headaches away from you, the owner, to allow you time and resources dedicated to where you excel whether it be business development, product creation, or long-term visionary planning.
Once the new team completes the new company’s build-out, you’ll most likely have an entity worth much more than the original transaction value and a second payday with a smaller ownership percentage but a much higher valuation on the second transaction.
Real Life Example:
Commercial/Industrial Specialty Contractor
Organic offers at $8m
Our Valuation at $22m
Through our process: Multiple Offers at $24m+
Total Seller Benefit $29.5m
President reinvested 20% of his shareholder equity in a $40m company that does $200m+ today
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