As shareholders balance short- and long-term corporate objectives alongside personal financial goals, the macroeconomic landscape plays a critical role. Currently, the aging U.S. population is accelerating the need for ownership transitions and generational planning, which often requires additional capital to successfully execute. At the same time, many companies are currently holding excess capital, presenting an opportunity to address these important shareholder goals.

Several of the factors that caused many companies to accumulate excess corporate financial firepower can be better understood by turning back the clock to 2020. In the wake of the pandemic, businesses took a cautious approach to liquidity management, bolstering their balance sheets in response to economic uncertainty, supply chain disruptions, and shifting consumer behaviors. Government stimulus measures, historically low interest rates, and conservative capital deployment strategies further contributed to the accumulation of excess cash reserves. 

Aligning Capital with Shareholder Goals

  • Shareholder Return Strategies – The following are some ways to return capital to shareholders:
    • Develop or enhance existing dividend policy to address what portion of future earnings will be distributed to the shareholders
    • Execute a one-time or phased recapitalization to distribute excess cash or increase leverage by replacing equity with debt
    • Repurchase shares from shareholders looking for outsized liquidity event
  • Personal Goals Supported by Increased Liquidity – The following is a personal decision tree that shows ways liquidity could be used if received:
    • Portfolio diversification to address desired risk/return
    • Estate planning and generational transition strategies that require capital to facilitate goals of individuals and families
    • Shareholder buy-outs to achieve desired shifts in the shareholder roster

Another factor driving this trend of excess corporate financial firepower is the sluggish M&A market in recent years, which constrained growth investment opportunities for many companies. While there has been optimism around a stronger M&A market in 2025, Q1 momentum appears to be lagging expectations, prompting companies to explore other capital deployment options. Having a thoughtful capital allocation strategy and the flexibility to pivot is critical to driving the greatest value for shareholders.

There is a clear divergence in how public indexes and Selected Private Companies[1] are utilizing excess cash reserves, specifically around debt repayment and deleveraging strategies. Public companies typically aim for a defined leverage range, while many private companies prioritize debt repayment, irrespective of leverage profile.

The inherently conservative nature for Selected Private Companies with the tendency to prioritize debt repayment as a use of excess capital, even when operating with minimal leverage, is further illustrated when analyzing capital allocation strategies in comparison to that of the public indexes. Which begs the question: Is paying down debt the best option or is greater shareholder value achieved by deploying capital differently?

In the last 12 months, there was a shift among many privately held companies to adopt a more structured approach to capital allocation. This heightened awareness stems from a recognition that disciplined capital management can drive greater long-term value creation. For many companies, the scale of their current liquidity reserves and debt capacity far exceeds the capital required to sustain operations (even in downside scenarios) and fund future growth opportunities. While acknowledging the complexities of the macroeconomic environment into their decisions, many business owners and executives are looking at excess capital and are focused on finding ways to deploy capital more efficiently to drive greater return for shareholders.

To get to the decision on “how much to return and when,” companies first begin with analyzing how much capital they need in the business. The answer to this is unique to every single business and numerous factors and sensitivity scenarios must be explored.

Examples of personal shareholder goals that could lead to potential financing events for owners:

  1. Estate Planning
  2. Personal Investments/Portfolio Allocation
  3. Establishing Foundation
  4. Minority/Majority Recapitalization
  5. Exit Strategies
    • Sale to an ESOP
    • Sale to 3rd Party
    • Management buyout
    • IPO

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Corporate Advisory supports clients by engaging in strategic dialogue to assess key priorities, evaluate alternatives, and guide decisions that best align with corporate and shareholder goals to drive long term value. Our specialists can work with you to develop strategies for success in transitioning ownership of your business. For more information, reach out to your PNC Relationship Manager, or contact us.