External Growth — It’s Not Just Buying

My company Capstone is in the business of helping clients with external growth, and that usually means buying another company. But not always. It’s easy to miss a rich field of alternative opportunities if you just latch on to acquisition.

Let me just focus on one of these: minority interest ownership. This surprisingly neglected tactic has many significant benefits. First of all, assuming you have a limited budget to invest in external growth, buying several minority interests allows you to spread your risks. You don’t have to put all your eggs in one basket.

Secondly, you can purchase an interest in a company that would otherwise be too expensive, or too big for you to comfortably acquire whole.

A third benefit is that your investment as a minority owner is unlikely to trigger the departure of a management team that you may want to see remain for some years to come.

An instinctive objection arises when I raise the possibility of minority interest purchases with clients. “But we want to control the company we are buying” They think of minority ownership as a kind of passive investment where you effectively have no decision power over what happens.

In reality, you can often have your cake and eat it — purchase a minority interest and exercise the control needed to achieve your goals. If there are specific results you are seeking from an acquisition, you can have these written into your minority purchase agreement. They might include customers, suppliers, technology, personnel or any other asset that is motivating you to make a purchase. If you are looking for more widespread influence, you can also stipulate a presence on the board.

Sometimes a small piece of a big pie is all that’s needed to satisfy your company’s hunger for growth.