How does a dividend recapitalization work? Can you do a dividend recapitalization to take out equity and then sell the business after? How would this impact valuation of business down the line?

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Yes, you can take out equity and then sell the business after. It shouldn’t really impact valuation in the sense that it doesn’t alter the company’s EBITDA (doesn’t include interest expense) which will be the basis of buyer’s model to derive i) cash flow and ii) purchase multiple.

Putting debt on a business actually only helps you in my mind. First, the buyer will acquire on a debt free, cash free basis, which wipes clear the seller’s capital structure. Also, recapping a business right before a sale shows the potential buyer that debt capital markets are willing to take the risk profile of that asset.

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It’s an LBO with no change in control, the funds are used to payout the existing owners.

Not likely you sell the business right after bc it’s now saddled with a new, large trench of debt resulting from the dividend recap, unless a strategic buyer sees it as an important part of its growth.

Thanks! Let’s say that the business currently has 0 debt. The dividend recap brings debt to equity to 1:1 (which seems in line with norm). In this case would a buyer be dissuaded? Also, valuations seem to be on ebita multiples. So unclear how the recap would impact ebita

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