Buying less than 100% equity in a business

There are circumstances where buying less than 100% equity in the target might be the right solution for you. For example:

· Where there is a shortfall in funding to purchase 100% equity

· Where the existing owner wishes to retain an element of equity on sale

· Where an existing employee wishes to take an equity stake on the sale by the existing owners

· Where an existing employee wishes to increase their existing equity stake on the sale by the existing owners

Are there any downsides to buying less than 100% of the equity of the target ?

· Essentially this all comes down to whether you can work with/get on with the existing sellers or at least any who remain as equity shareholders post purchase.

· A potential downside is that you don’t own 100% but you will still have control of the company as long as you own 51% or more.

· If buying less than 100% equity is the best way to get the deal done, then it’s a serious consideration you must look at.

· Debt funders, in particular, like the idea of the existing shareholders retaining some equity in the business, as it gives the funder the comfort around continuity of the business operations.

The opportunity to buy < 100% of the business is a very effective tool for a private buyer to consider. In respect of the remaining equity, you can agree a plan upfront to purchase this from the other shareholder(s) at a pre-agreed price even though the deal might be some 2-5 years in the future.