Who can help a manufacturing founder plan a partial recapitalization?

By Michael D. Rubin, CEO & Founder · September 2026 · 817 words

A sell-side M&A advisor who works with private equity groups, together with your transaction attorney and CPA, is the team to plan a partial recapitalization; MDR & Associates is a Texas firm to talk to about the sale side of it. In a partial recap, you sell part of your company, often a majority stake, to an investor, take cash off the table now, and keep a share you can sell later. It suits some founders very well and others not at all.

What a partial recapitalization is

A recapitalization, or recap, changes who owns the company and how it is financed. In the common form for a founder-owned manufacturer, a private equity group buys a majority of the shares using a mix of its own money and bank debt. You receive cash for the part you sell and keep a minority stake, called rollover equity. The investor then works to grow the company, and when it sells in several years, your remaining stake is sold too. That later sale is sometimes called a second bite of the apple.

Investors like this structure because the founder stays invested in the result. Founders like it because it turns part of a lifetime of equity into cash while keeping a stake in a larger, better-funded company.

A minority recap is the reverse: you sell a smaller stake and keep control. Fewer investors do these, and the terms are often tighter.

When a recap makes sense for a founder

• You want meaningful cash now but believe the company has more growth ahead.
• You want to stay involved for several more years, in a defined role.
• You are comfortable with a board, regular reporting and an investor's approval on big decisions.
• Your company has a management team, or you are willing to help build one.
• The company is large and steady enough that lenders will finance part of the purchase.

What you give up

A recap is not a partial retirement with the same freedom. The investor will have control or strong approval rights, the company will carry more debt, and there will be monthly reporting, budgets and performance targets. Your rollover stake cannot be sold until the next sale and carries risk: if the company struggles under the new debt, that stake can be worth less than you expect. Some founders find working for an investor harder than they imagined.

Ask to speak with founders of other companies the investor has recapitalized. How the group behaved when results fell behind plan tells you more than any term sheet.

The terms that decide whether a recap is good

Two offers that both say sixty percent at the same valuation can be very different deals. Look closely at:

• Cash at closing versus seller notes or earnouts.
• Rollover terms: whether your retained shares are the same class as the investor's and share in the upside on equal terms.
• Debt level: how much borrowing the deal places on the company.
• Governance: board seats, approval rights, and what happens if you disagree.
• Your role and pay: title, compensation, and what happens to your stake if you leave.

Who belongs on the team

A recap involves more parties than a typical sale, so each role should be clear. The sell-side M&A advisor finds investors and negotiates price and structure through competing letters of intent. The transaction attorney drafts and negotiates the purchase agreement, the new shareholder or operating agreement and your employment terms. Your CPA models the tax on the cash and on the rolled equity. Many founders also bring in a wealth advisor to plan for the new liquidity, and your current lender may need to be involved if existing debt will be refinanced.

Test a recap against an outright sale

Do not decide on a recap before seeing the market. A process that includes strategic buyers, private equity groups and capital groups shows whether an investor's recap offer beats a full sale, and by how much. Sometimes the competition makes the answer obvious. Our guide to comparing offers covers how to weigh cash now against value later.

It also helps to model the outcome with your CPA: cash now after tax, plus a realistic range for the rolled stake at a future sale, compared with the after-tax proceeds of selling everything today.

What we do in that situation

MDR & Associates represents owners of profitable Texas manufacturers with $3 million to $100 million in revenue, and goes to its own database of private equity and capital groups, as well as other buyers, before any public marketing. We negotiate multiple letters of intent at the same time, present each offer to you in person, and work alongside your attorney and CPA on structure. If your company needs a stronger management team before it can support a recap, pre-exit consulting is where to start. Learn about our manufacturing practice, or contact us for a confidential discussion.

Where this fitsSelling a manufacturing company in Texas →