The Story: A 90-Year-Old Company Faces a Defining Capital Moment
Founded in 1932, McLarens Global Limited had survived the Great Depression, the Lloyd’s of London shake-ups of the 1990s, the catastrophe losses of 9/11, and the digital disruption of the 2010s. By the time the company was navigating its next chapter, it had built itself into something rare: the largest pure-play provider of technical insurance claims services in the complex commercial market, with over 1,600 specialists operating across 170 offices in 43 countries.
In December 2018, Lee Equity Partners (a middle-market private equity firm specialising in financial and healthcare services) made its initial investment in McLarens through Fund III. The partnership that followed was not a typical PE-strip-and-flip arrangement. It was a growth thesis built on patience, acquisitions, and operational depth.
Seven years later, that thesis had more than delivered. Since Lee Equity initially partnered with McLarens’ management team in December 2018, McLarens had more than tripled in size, expanded its geographic presence, and added new service lines and specialties through a combination of strong organic growth and 18 strategic acquisitions.
Now, the company and its investors faced the question every growing owner-operated business eventually confronts: What do you do when the business has worked, your equity is worth real money, but you’re not ready (or willing) to hand over the keys?
The answer, closed on October 15, 2025, was a $1.6 billion leveraged recapitalization. And it became one of the most instructive deal structures of the year.
The Decision: Liquidity Without Surrender
At its core, a leveraged recapitalization is an elegant solution to a persistent founder and shareholder problem. A leveraged recapitalization is a financial transaction where a company borrows money to pay a special dividend or fund a share buyback, returning capital to shareholders without requiring them to sell their equity. The company’s balance sheet becomes more leveraged, a higher debt-to-equity ratio, but existing owners retain their ownership percentage and voting control.
For McLarens, the traditional exit paths would have looked familiar: a full sale to a strategic buyer, an IPO into choppy public markets, or a secondary PE buyout that handed full control to a new sponsor with a new agenda. None of those options preserved the continuity of a management team that had spent seven years executing a coherent, acquisitions-led global expansion strategy.
Instead, the transaction provided existing shareholders with the option to receive liquidity or remain invested, while simultaneously providing McLarens with access to significant new growth capital commitments to support the continued execution of its growth strategy.
The deal was led by Lee Equity Partners Fund IV, LP, Lee Equity’s most recent fund, extending its long-term partnership with the company rather than exiting it. The recapitalization also drew participation from several blue-chip institutional investors.
The structure is worth pausing on. Shareholders who had been with McLarens through the growth phase (management, employees with equity stakes, and Fund III LP investors) were not being forced into an exit at whatever multiple the market dictated that day. They had optionality. They could crystallise gains if they needed liquidity. Or they could roll into Fund IV and participate in the next leg of value creation. That’s a fundamentally different power dynamic than a full sale.
As practitioners in the lower middle market know, leveraged recapitalizations typically close at 3x to 5x EBITDA in total debt in the lower middle market, with pricing tied to prevailing senior secured rates plus a margin based on risk profile. At McLarens’ scale and with its stable, fee-based, globally diversified revenue profile, the economics of the recap would have been compelling relative to the dilution cost of raising fresh equity.
The Outcome: Triple the Business, Zero Forced Exits
The numbers behind McLarens’ trajectory make the case for structured recapitalization more powerfully than any theoretical argument. Since forming its partnership with Lee Equity in December 2018, McLarens tripled in size, expanding its geographic footprint and service offerings through a mix of robust organic growth and 18 strategic acquisitions, growing to operate across a global network of 170 offices in 43 countries, employing over 1,600 professionals.
That growth story (built over seven years without being interrupted by a forced exit or a change-of-control) is the outcome the structure was designed to protect. McLarens CEO Gary Brown was direct about what the partnership enabled. “Our partnership with Lee Equity has been instrumental in driving McLarens’ growth and transformation,” Brown said. “Their support has allowed us to make the investments in talent, technology, and capabilities necessary to maintain our world-class levels of client service in a rapidly changing insurance market. We look forward to building on this momentum as we enter our next phase of growth.”
Now consider the counterfactual. Had McLarens pursued a full sale in 2022 or 2023, before the global expansion had fully compounded, shareholders would have crystallised value at a fraction of what the 2025 recap implied. A $1.6 billion recapitalization, structured to give shareholders optionality while simultaneously injecting new growth capital, represents a significantly different outcome than a rushed exit into a depressed M&A market. The new investment strengthened McLarens’ financial position and supports continued investment in talent, technology, and operational capabilities as it scales globally.
The contrast with over-leveraged PE structures is instructive. One of the primary criticisms of dividend recapitalisations is that the re-leveraging of transactions introduces additional risks not adequately mitigated, particularly through the implementation of a new value creation plan. As a result, deals can be overleveraged and ultimately fail. The McLarens transaction avoided this trap precisely because the recapitalisation was twinned with a continuing growth mandate, not a dividend extraction that hollowed out the balance sheet.
The macro backdrop reinforced the timing. The LSTA reports that 2026 year-to-date amend-and-extend activity on existing dividend recap loans is running 40 percent above the 2024 pace, suggesting sponsors are pulling forward maturity walls before any further credit tightening. Getting a $1.6 billion deal closed in October 2025, before markets tightened, was not lucky. It was disciplined execution of a capital structure strategy at exactly the right moment.
The Lessons: What McLarens Teaches Every Growth-Stage Owner
1. The Recap Is Not an Exit: It’s a Refinancing of Your Own Ambition
A leveraged recapitalization is a capital structure transaction in which a company replaces a portion of its equity with new debt and pays the proceeds to shareholders, the owner extracts cash from the business without selling to a third party, while the company assumes a higher debt-to-equity ratio and accepts the ongoing obligations that come with it. For McLarens, the transaction was a vote of confidence in the business’s future, not a retreat from it.
2. Shareholder Optionality Is Structural Wealth
This structure is popular among private equity firms, founder-owners, and growth-stage companies seeking liquidity events for a simple reason: it converts illiquid equity into optionality. Some shareholders take money off the table. Others double down. Both outcomes are valid, and both are only possible when the capital structure is designed to allow them.
3. Private Credit Has Made This Playbook Available at Scale
The market conditions now support more of these transactions than ever. The private credit market was estimated at USD 2.1 trillion in 2025 and is expected to grow at a CAGR of 10.7% between 2026 and 2035, driven by rising institutional investor allocations to alternative assets. Direct lending now matches the broadly syndicated loan market at $1.5–2 trillion in size and is forecast to reach $3 trillion by 2028. For middle-market operators with proven cash flow profiles, access to structured recap capital has never been broader.
4. The Alternative: More Dilutive Equity, Has Real Costs
Many companies turn to private debt to avoid overreliance on dilutive equity or inflexible bank financing. For founders, it can preserve ownership. Every equity round that wasn’t raised to fund McLarens’ 18 acquisitions was a percentage point of the company that McLarens’ management and investors retained. Compound that over seven years of 3x growth, and the ownership math becomes impossible to ignore.
5. The Framework: When Does a Leveraged Recap Work?
The McLarens deal checks every box on the recap viability scorecard: stable, recurring, fee-based revenues across a globally diversified client base; a proven management team with a clear acquisition pipeline; a patient financial sponsor with sector expertise; and the scale to support institutional debt at attractive terms. If the company underperforms, debt service becomes burdensome, potentially limiting reinvestment in growth or ability to weather downturns, which is why investors must evaluate whether the company’s cash flows reliably support the added debt load. For businesses that meet that test, the recap is not a risk. It is a rational use of leverage to accelerate what the business was already doing.
The window exists, but it is not permanent. Cracks are emerging in corporate credit, with a series of high-profile leveraged loan defaults in late 2025 and the rising use of payment-in-kind toggles in direct lending pointing to mounting stress. Owners with strong businesses and the balance sheets to support structured leverage should be asking the recap question now, not after the market reprices.
Key Insights
- Recaps give shareholders a choice, not a deadline. The McLarens structure let existing investors take liquidity or reinvest, a flexibility that a forced sale never provides.
- Tripling a business without a forced exit is the real compounding story. Seven years of uninterrupted execution, funded through structured capital rather than serial dilutive equity rounds, drove 3x growth and 18 acquisitions before the recap was even executed.
- The private credit market is deep enough to support this at scale. A $1.7 trillion global market, with direct lending as its largest sub-strategy, means structured recap capital is available for businesses far smaller than McLarens.
- Over-leverage kills; right-sized leverage compounds. The cautionary contrast is real: deals loaded with debt to fund dividends without growth plans fail at predictable rates. The McLarens recap paired liquidity with a continuing growth mandate, the critical distinction.
- Timing the recap is a strategic decision, not a financial one. The best recap windows open when cash flows are strong, the sponsor relationship is proven, and credit markets are cooperative. McLarens executed in October 2025, before the credit tightening that followed. That is a strategic judgment, not a coincidence.
