1. The Minority Recapitalization
Revised 5/1/2017

2. Copyright Release & Usage
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3. Non-Control Capital Definition of Non-Control Capital
The use of third-party subordinated debt, preferred stock and/or minority common equity in a business where shareholders retain (or obtain) majority control after the investment
Owners maintain economic, operational and board-level control
The investor of new capital will typically have either a board seat or a board observation right
The Primary Uses of Non-Control Capital
Dividends to shareholders/owners (a/k/a Minority Recapitalization)
Acquisition financing
Growth/expansion
Buyout of inactive shareholders/partners
De-lever and/or restructure the balance sheet
Family ownership transitions from one generation to the next
Management buyouts & buy-ins
Employee Stock Ownership Program (ESOP) transactions

4. Junior Capital Example Capital Structure
Capital Stack
Junior Capital Example Capital Structure
Common Equity
Preferred Stock
Subordinated Debt
2nd Lien
Senior Debt
Junior
Capital
Expected
Return

5. Minority Recapitalization Example1
Minority Recapitalization Exhibit
**Please note that the following example is hypothetical and is intended for illustration purposes only**
Minority Recapitalization Example1 7x 6x 5x 4x 3x 2x 1x
Active Shareholders / Management Team
Ownership = 65%
Inactive Shareholder
Ownership = 35%
Active shareholders boost equity from 65% to 95% through a leveraged recapitalization
Active Shareholders / Management Team
Ownership = 95%
Junior Capital
1.0x EBITDA
Ownership = 5%
Senior Debt
3.0x EBITDA
Junior Capital
1.0x EBITDA
Ownership = 5%
Senior Debt
3.0x EBITDA
Multiple of EBITDA
Pre-Transaction
Leveraged Recapitalization
Post-Transaction
1Subject to the preferences of the issuer or the total amount of outside capital required to facilitate a minority recapitalization, common equity can also be substituted for or used in conjunction with junior capital.

6. Recapitalization Characteristics
Non-Control vs. Control: Features
Recapitalization Characteristics
Lower debt/leverage levels
Current owners retain operational and economic control
Owners perceive meaningful potential share value appreciation
Industry prospects attractive
Other family members are active in the business
Investor selection and fit is critical
Financial leverage benefit stays with majority owners
Strategic buyers are not involved
Owners/sellers can refinance or recapitalize to own 100% again
Less concern about future leverage
PE firm uses leverage to create value
Control transfers to new majority owner
More cash to owner at close
Benefits owners at/near retirement
Valuation is primary sale criteria
Owners less concerned about legacy
Owner/CEO impartial to control
Strategic buyers prominent in process
Competitors may be a buyer
Financial engineering benefits goes to buyer
All employees must be justified, including family members
Minority Recap
Majority Recap

7. Minority Recapitalization vs. Control Scenarios
Non-Control vs. Control: The Numbers
Junior Capital Example Capital Structure
Minority Recapitalization vs. Control Scenarios
Please double-click graphic to open, explore and modify the embedded Excel file as necessary.

8. At the End of the Day… A Non-Control investment could be useful when:
The company has significant future growth potential
Company owners are not yet ready to retire
Owners want to lower their personal risk in the business yet keep a majority ownership stake
Family owners care about their legacy and want to continue keeping the business in the family name
Owners are attracted to the “multiple bites at the apple” scenario typically employed by non- control investors
Owners and/or their intermediaries can identify investors that specialize in non-control investments and who can bring more than just capital to the transaction