A recapitalization is often an ideal alternative to an outright sale of the business. In a typical recapitalization, Dunton partners with the company's owners by investing equity in conjunction with senior and possibly junior debt. The cash raised is used to redeem shares from the original owners on a capital gains tax rate basis. The level of debt to equity will vary from transaction to transaction based on the desires of the company owners, the consistency of the company's earnings, capital expenditure requirements, and the company's rate of growth.

Generally an owner may "cash out" up to 85% of the fair market value of the company while continuing to maintain an ownership position of 30% to 70% of the company.

Business owners can unlock the majority of the illiquid value contained in their business while continuing to retain operating control and a significant ongoing ownership interest in their company.

An owner will consider a recapitalization if he wants to:

• Provide personal liquidity
• Diversify financial holdings
• Retain majority ownership & operational control
• Receive a substantial upfront cash payment
• Receive substantial gains in the future from the additional value created from owner's retained ownership
• Minimize estate taxes with estate tax planning
• Cash out inactive or dissident shareholders
• Enhance the company's financial structure
• Eliminate personal financial guarantees
• Restructure and lower debt level

Growth capital allows companies to take advantage of strategic opportunities to strengthen the company's competitive position. Dunton will take a 30% to 49% minority investment in companies seeking capital to expand or restructure operations, enter new markets, fund new product development, and to finance acquisitions.

An owner will consider growth capital to:

- Employ patient capital to execute long-term growth strategies:

Organic Growth Strategies

• New product development and/or additional production capacity
• Sales and marketing investment
• Expanding management team and systems

Acquisition Growth Strategies

• Strategic acquisition to consolidate market position
• Acquisition of a new product line

-Replace restrictive financial partners – often conservative lenders

-Provide additional working capital

-Add a financial partner to provide strategic guidance and corporate finance expertise

A management buyout ("MBO") is a transaction where one or more managers of a business purchase the company where they are currently employed. The MBO is a common way for an owner to sell a small or midsized business. The MBO can often be a more attractive option than selling the business to a competitor or strategic buyer. The primary advantage of an MBO is the transaction can often be completed quickly and seamlessly once the key elements are in place.

Benefits of Working with Dunton

• Assist in negotiating the price, terms and conditions of the purchase
• Guide management through the negotiating process
• Work with lawyers and accountants to document the transaction
• Comprehensive knowledge of change-of-control transaction structures
• Orchestrate the buyout process resulting in a more efficient use of management's time
• Experienced at determining the proper value of an acquisition and appropriate capital structure
• Arrange debt financing and co-invest alongside management

An "employee stock ownership plan" or ESOP can be an extremely effective technique for transferring ownership in corporations on a highly tax-efficient basis.

An ESOP is a tax-qualified defined contribution employee benefit plan that primarily invests in the stock of the employer company. The ESOP is managed, and the assets of the ESOP are held, by a trustee, just like the assets of a 401(k) plan. The ESOP trustee is the legal owner of the stock but holds the stock for the beneficial interests of the employees. The ESOP can own any amount of equity of the sponsoring employer up to 100%.

From a tax perspective, selling shareholders like a sale to an ESOP, since they can structure the transaction to permanently avoid paying capital gains taxes, and the company also gets large income tax deductions for the repayment of both principal and interest on the acquisition costs.

If you would like to learn more about how an ESOP can be an effective tax-advantaged vehicle to transfer ownership, please contact us via our contact page for a copy of our presentation.