Taking Control With a Minority Investment

Recent news indicates that the federal government will “prop up” the major banks if they continue to falter.  This has some worried that these large financial institutions will be “nationalized”.  The government says that this is not the case:

The strong presumption of the Capital Assistance Program is that the banks should remain in private hands.

Simply put, the government is making a minority investment in these banks, and there is a question of how much control the government will have in these institutions.

controlSimilarly, when we suggest to our clients the possibility of a minority investment in a company instead of an outright acquisition, we sometimes receive push-back over the issue of control.  In fact, in two separate meetings over the past month, our clients’ expressed concern that they would “lack control” even though they would have a financial stake in the company.

A minority investment in and of itself does not mean that the majority shareholder has total control over the direction of the company.  In fact, you can own only 1% of the company and still put yourself in the driver’s seat to get the strategic relationship and benefits you want. The issue of control comes down to the way the minority investment (or any deal) is structured.

It is our philosophy to first find the right strategic prospect, win them over and then find a mutually beneficial solution to the deal structure to bring the two companies together.

Concern over control should not stop you from considering minority investment, or any particular form of external growth.