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Private-Equity Minority Investments

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Private-Equity Minority Investments

Can Less Be More?

Boston Consulting Group,

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Though they give private equity firms less control, minority interests offer certain advantages to both buyers and sellers.

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8

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Recommendation

Taking a minority shareholding is becoming more common for large private equity (PE) funds, according to Boston Consulting Group professionals Antoon Schneider and Cristina Henrik. As PE firms seek to deploy roughly $1.2 trillion of uninvested capital, they’re more open to atypical deals, while sellers like the control they retain and the know-how they gain from minority investors. However, PE funds need to do their homework to ensure the success of their minority stakes. getAbstract recommends this study’s insights on this little-reported phenomenon to private equity investors as well as to companies considering working with them.

Summary

Large private equity (PE) funds are increasingly taking minority stakes in target companies. Since 2008, the proportion of deals involving minority investments has averaged 27%, compared to 13% between 2004 and 2007. In Asia and Europe, minority ownership appeals to the large number of family-owned businesses that wish to maintain control. In many countries, foreign investors are restricted by law from taking over a local concern.

Sellers of minority positions cite three main reasons for agreeing to such deals: First, more than 90% said they needed capital, especially to fund growth. About one-third considered...

About the Authors

Antoon Schneider is a managing director at the Boston Consulting Group, where Cristina Henrik is a principal.

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