Minority investments are a creative way to think about transactions, one that is often overlooked. When we create a transaction with a company, there is a spectrum of possible involvements—everything from an informal strategic alliance to a 100% acquisition. A minority investment is somewhere in between these extremes.
Typically consisting of a quarter to a third of the equity position of the company, minority investments can actually include any investment up to 49 percent. In other words, it’s anything less than a majority ownership of the business.
All too often, investors want to move straight into a majority ownership of an acquisition, because they are so anxious to have control. 80 percent is a standard threshold for two reasons. First, it allows you to consolidate financials, intercompany debt, and other financial matters. Second, you have the majority right to make decisions, which is especially helpful in choosing how the transaction is completed. Of course, you can also move in at a 100 percent equity position and have complete control.
It’s a common misconception that you cannot control a company with a minority stake. When using minority investment you can still control the business if you document your desired level of control in the agreement.
As Marcus Lemonis said in an interview on Squawkbox: “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.”
Those of who you have read my blog know I am a strong advocate of using minority investment to execute a strategic growth plan. Minority investments can be a very effective tool in your toolbox and can allow you to move forward on transactions that would otherwise be impossible to approach.
I hope that by reading this post, you’ll consider minority investment when weighing your growth options.
Read more on the advantages of minority investment: