Deal comes with minority owner?

searcher profile

April 05, 2024

by a searcher from Belmont University in Jacksonville, FL, USA

Hey all! I’m looking at a deal that comes with a minority owner. Appears to be the family of the other exiting owner.

I can imagine a handful of pros and cons with this scenario, but how would you view it?

What am I not thinking of? Anyone have experience with this?

1
4
100
Replies
4
commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
When you say minority, what do you mean? 90/10? 80/20? 60/40? This will make a big difference.

For example, many of our clients negotiate rollover equity with the seller, whereby the seller usually takes around 10%. From our client's perspective, this means seller has skin in the game post-acquisition, which is a pro. From the seller's perspective, there is the chance to benefit from upside (meaning incentives aligned, again a pro weighed against the con of giving away that upside).

However, with a 90/10 split, there is never really a serious conversation about control--under the terms of the eventual shareholders' agreement, our clients will be in charge and will also have a ROFR and, possibly, a call option.

If the split is more like 60/40, the shareholders' agreement will look very different, as a 40% shareholder will want to have a lot more say in how the company is run. Then you are taking on much more of an active partner.

Let me know if you want to discuss. Always happy to talk things through. Reach out here or email me at redacted
commentor profile
Reply by a professional
from Villanova University in West Chester, PA, USA
Agree with ^redacted‌'s comments. Great perspective. It really depends on the terms of the operating agreement regarding control, buy/sell provisions, tag along & drag along rights, etc. As long as the person is good to work with and you want to have them in the picture and the operating agreement or governing documents have adequate protections and rights, it's not a problem. It's important to know however what, if any, decisions would require unanimous vote or their vote and how you could buy them out in the future and have an established mechanism for such buy out and sufficient terms so that it will be a seamless process. Happy to chat further. You can schedule a complimentary consultation through the link in my bio. I also have a course that discuss this and other aspects of structuring a deal called Acquisition Insights that's linked in my bio as well.
commentor profile
+2 more replies.
Join the discussion