Raising Capital after the fact

[Garison Clemens]

Has anybody placed/raised capital for a deal that has already closed but the owners are looking to pull their capital out after the fact? Other than deal flow and having a proven business plan so far (1 year of ownership so far), what are the pros and cons?

[Brian Burke]

It's called a "recapitalization" (or abbreviated "recap") and it's fairly common.  We've done it, where we've closed with our own cash to get control of the deal and then syndicated ourselves out.  Another variation is a syndicated deal getting re-syndicated to new investors to take the old ones out (at the new market price).  It's done all the time in the institutional world.

In your case, you have in-place debt that you are not looking to pay off, so the biggest concern here is lender consent for the recap.  Whenever the equity interest changes hands the lender would likely want to approve that.  Recapping the equity without telling them is likely a violation of the loan covenants.