CEO/Entrepreneur Exit & Liquidity Options
Ephor Newsletter Q3 2026
May 2026
This May 2026 Newsletter, as we committed, is the next sequential newsletter in our “curriculum” of guidance to CEO Entrepreneurial/Founders who are contemplating Selling or Exiting Your Business, or possibly in the near-term are preparing and educating themselves on this Important subject.
As a refresher, in Ephor’s Q4 2025 Newsletter we provided a playbook on “Exit Planning Fundamentals”: subsequently in our January 2026 Newsletter we provided an educational tutorial on “Buyer Types Attributes” then our last Newsletter in March 2026, we provided a high level overview on what are the wealth transfer options and exit financing sources.
As such in this May Newsletter we are providing a “deep dive” and copious review of the Financing Options. Ephor strongly suggest that you evaluate the following attributes of these financial sponsors and compare their “demeanor” to your specific situation. After your review, please reach out to Ephor garza@ephorgroupinc.com and we will gladly provide an hour or so of our expertise on a gratuitous basis to discuss & educate you on your exit and/or wealth transfer options.
Overview
Selling or exiting your business is most likely the most important and relevant financial decision of your life. Selling or exiting your business for many CEO Entrepreneurs means selling 100% of my business: Retiring or a desire to do something else combined with accepting the “reality” of losing control of your baby. Possibly you are just not ready for all those realities of life; perhaps you still have the energy and desire to continue; most likely you still believe in your company& its future; and you are still motivated by working with the staff and clients?
Well guess what? There are other wealth transfer options than just selling your business!
Enter the concept of “Recapitalization”: A recapitalization of your business or “Recap” is a viable exit and/or wealth transfer alternative for many CEO Entrepreneurs & Founders, especially those that are in the age range of 40 to 55 years old.
“Recap” Options Small Business Founders/CEOs Include:
The Mezzanine Financing Alternative
Overview & Definition:
The word “Mezzanine,” utilized in the financial engineering arena, describes a layer of financing that “sits” on the balance sheet between classical asset-based financing or senior bank debt financing, and the equity component of the company’s balance sheet. Often in a typical Mezzanine structure, there is a debt component that is tied to an equity component that generally represents a small minority equity interest.
Operational Statistics:
These alternatives best fit organizations that generally have a minimum of 4%-6% annual revenue growth rates that are recurring & established, combined with business models that have illustrated “some” scalability. As a result, EBITDA profiles must illustrate annual EBITDA growth rates of ~5% EBITDA or greater. Minimum EBITDA levels are generally $.750m to $1.50m on a consistent trailing twelve-month basis (TTM), preferrable for a minimum of 2 years.
Terms:
Debt component interest rates are generally in the low teens with an equity component of 5%-10% of the company's equity. The duration of the investment is generally 3-4 years. For the “best business models,” this is a very common growth “bridge” capital structure to a future “complete or majority ownership” wealth transfer and exit of the business assets.
Governance Requirements & Considerations:
Generally, a formal governance process is required that includes at least an Executive Chairman Role or a Board of One. (Ephor’s Board of One Concept) A “minority interest” investment, generally is minimally invasive on day-to-day operations.
Shareholder Considerations:
This alternative generally provides partial exiting & wealth transfer through the combination of debt and equity and therefore is very “equity efficient”. Likewise, this instrument provides a meaningful wealth transfer amount that can be ~2x to ~4.5x times trailing 12-month EBITDA performance. Therefore, it is very attractive in satisfying very near-term wealth transfer & liquidity objectives, while maintaining a significant equity position for long-term wealth creation objectives. In layman terms, this alternative includes a “second bite at the apple” concept.
Potential Sponsors:
Mezzanine Providers: There are approximately 15-22 quality “mezz shops” in North America that are Useful Capital and have invested in technology-enabled and outsourcing-oriented business models.
Small Business Investment Corporations (SBIC’s). SBIC’s are US Government sponsors of Capital and have become very active participants in the sector. Generally, there are at least 1-3 such providers in every region of North America.
The Minority Recapitalization Alternative
Overview & Definition:
A minority “recap” is defined as 49% or less of the company’s equity and voting rights that are tendered for exiting & wealth transfer objectives. This is a very common and often executed alternative for organizations that have illustrated repeatable revenue growth postures while presenting consistent and increasing “recurring” and predictable future EBITDA performance. Generally, the wealth transfer aspect of a “minority recap” is combined with an infusion of growth capital and/or part of an acquisition financing event. However, it is also common as “step one in a phase out sale or exit of a company”. The most relevant benefits of this alternative are that current ownership/equity maintains governance control and, in layman terms, a great 1st step to a “second bite” at the apple.
Terms:
Generally, 18% to 49% of the company's ownership shares and voting rights are tendered or sold. In general, the shareholder agreement includes most customary minority shareholder rights (generally determined at the state level), which are negotiated as part of the transaction structure. Generally, the financial sponsors provide a 3-year to 5-year duration as their investment time frame.
Governance Requirements & Considerations:
A formal governance process is generally required through a formal Board of Directors, with the minority financial sponsor having 1-2 seats of a 5-person board or a minority number of seats, which may also include one observer seat as well. Please note, however, that Ephor has participated in Executive Chairman or Board of One concepts that have proven to be quite successfully utilized in this alternative, with the results being a “balanced stakeholder approach”.
Shareholder Considerations:
The Minority Recap alternative generally provides a substantive exit & wealth transfer portion that can provide an enterprise value of 4-5.5X times trailing twelve-month EBITDA, combined with maintaining control and the attractive “second bite at the apple.” This alternative is most attractive to existing shareholders that have investment or wealth transfer objectives that are required in both the very near-term combined with longer-term objectives tied to the company's increasing and attractive predictable financial performance.
Minority Recap Financial Sponsors
Private Equity shops that specialize in “minority recaps” of technology-enabled service or outsourcing business models, and other “minority buyout-oriented” Private Equity groups that have experienced success in the sector. As such, they are Useful Capital. Ephor currently monitors these types and has worked with 8-10 of these providers that have established track records in the sector.
Alternative Asset providers have recently entered the “Minority Financing Exit alternative and will become more prevalent in the near-term.
The Majority Recapitalization Alternative
Overview & Definition:
The “majority recap” alternative occurs when the shareholders tender greater than 51% of the entity's shareholder interest and voting rights. However, it is most common that , greater than 70% is averaged value tendered. This alternative is quite common where the company business model is proven, scalable and has provided historically sustainable revenue and EBITDA growth rates, and where the founders or shareholders are “aged” as such, a liquidity event is “a financial life changing event”.
Operational Statistics:
These alternative best fits organizations that generally have institutional worthy revenue growth rates and consistent and predictable “recurring” EBITDA performance. EBITDA hurdle rates are generally greater than $1.75m on a trailing twelve month basis (“TTM”). Barriers to a “majority recap” can include significant customer concentration issues, lack of illustrated operational scalability, a management team that is not proven (owner dependency), or does not include a “bankable” experienced proven “sector executive” involved in the business.
Terms:
In general, normal equity tendered amounts range between 70% to 90+% of the company's ownership shares and voting rights. The resulting shareholder agreement includes most of the customary majority shareholder rights, and majority control voting considerations, which are negotiated as part of the transaction structure. Investment time frames are generally 3-5 years.
Governance Requirements & Considerations:
A formal Board of Directors will be required that generally includes 5 members (though 7-seat boards are becoming quite common) where most of the seats, 3 in a 5-member board, are appointed by the “controlling” shareholder group, with the founding shareholders generally having 1 seat. The remaining seat most generally goes to a knowledgeable sector or industry executive known as a “independent board outsider.”
Shareholder Considerations:
This alternative generally includes a “substantive” exit & wealth transfer amount that can provide an enterprise value of 5-10 times trailing twelve-month EBITDA (TTM basis).
However, loss of control and no significant “second bite of the apple” are the trade-offs in this wealth transfer alternative. Often there are “earnout provisions” that sequester the cash at closing amount. This alternative is most attractive to existing shareholders that are aging, or need to diversify their personal investments, or feel that current management simply does not have the skills or know-how to take the business model to the next level.
Majority Recap Financial Sponsors
Private Equity shops that specialize in “majority recaps” of technology-enabled service or outsourcing business models, and other “buyout-oriented” Private Equitythat have experienced success in the business services sector. There are ~35 “Useful Capital” Majority Buyout PE providers in the business services sector in North America, that Ephor monitors or have worked with over our 25+ years in the sector.
Family Wealth Offices have, over the past 2-4 years, entered the market and illustrate more “Patient Capital,” flexible term approach, and are rapidly becoming “Useful Capital” providers. Family offices are Ephor “partner of choice in Buyout situations”
New “entrants” in the Majority Recap Market place again includes Alternative Asset Funds and other Government sources such as SBIC’s.
At Ephor, over our 26+ years of service to you, we have utilized, studied, and have been participants as advisors, investors & intermediaries in transactions including “all’ of the above alternative types. As such, Ephor’s guidance to you includes:
As stated earlier: each of you should carefully evaluate your specific liquidity, Exit and Wealth transfer objectives and the associated “Recap” alternatives presented herein.
You should carefully think about when your timing is “right” for you and your business; based on personal, economic, risk mitigation and of course industry enterprise value dynamics etc.
Finally, when do decide the timing is right: you need to seek outside assistance in the final evaluation and execution of any of the chosen alternatives.
In closing: I often Public Speak on Exiting and Wealth Transfer Initiatives for the CEO Entrepreneur and I always close my remarks with:
“Never treat our hard-earned Equity Value as a “Commodity”.
“Ensure you receive fair value for your Equity and your Hard Work!”
Regards & Best to You and Yours!
Garry E. Meier
And the Ephor Strategic Advisory Team
Ephor Group Inc.