Keys to Successful Minority Investment

On yesterday’s M&A Express videocast, The Hidden Power of Minority Ownership, I mentioned Marcus Lemonis, a businessman who turns around struggling businesses in the CNBC show, the Profit.

I’ve written about Lemonis before on the blog, and how he really prefers to use minority ownership so that the founders or original owners of the business continue to have a stake in it. A good operating agreement and dispute resolution are key to the rules of engagement of how you’re going to do business together – whether it be with a majority or a minority investment. In my blog post, I discuss this issue more in depth. Here’s the repost for those of you who may have missed it:

Why You Don’t Need a 51% Stake to Control a Business

“I always take control, but I did not buy 51 percent. Control doesn’t have to be 51 percent. I think people get confused by that.” Marcus Lemonis comments about minority investment on Squawkbox are spot-on.

When asked to elaborate, he explained, “I just document everything: full financial control, full operational control. I can have 10 percent [invested in a company]…and I’m still going to [run it]…”

When I speak with executives or owners about minority investment as an option, I usually hear the same pushback: We don’t want to do minority investment because we want to control the business. Well, as Lemonis’ comments demonstrate, control and minority investment are not mutually exclusive. You do not need a majority stake or 100 percent acquisition in order to have control.

Perhaps you do not have sufficient funding to acquire 100 percent of a company, or you would like to diversify your investments. You may still be able to use minority investment to achieve your strategic goals. Find out what parts of the business are important to your growth strategy and write them into your purchase agreement. Perhaps you need full control over one specific product line of the business. Make sure to document your desired level of control in the agreement.

Another idea is to build an option for purchasing further shares or a complete buyout into the agreement. You can even make this option contingent on specific performance conditions.

Minority investment is one of those pathways to growth that’s often overlooked. Don’t let this opportunity pass you by because you have misconceptions about “control.”

Check out Lemonis’ full interview on Squawkbox.

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