Minority Shareholder Buyout: Clean Up Your Cap Table to Create More Value

Chris Risey
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Clean Up Your Cap Table to Create More Value
Clean Up Your Cap Table to Create More Value

An often-overlooked way to create more value is increasing ownership in your company through minority shareholder buyouts, especially in high-growth businesses. Growth companies frequently raise capital, and growth often takes longer than expected. Over time, some investors lose interest or seek liquidity, creating an opportunity for founders to increase their ownership stake.

We recently helped a company refinance debt, fund an acquisition, and repurchase roughly 10% of its equity from minority shareholders and select board members. Moves like this can significantly increase long-term value for remaining owners.

An ideal time to consider such shareholder buyouts is when the Company is profitable and can support debt service. Proactively approaching shareholders with a buyout offer can create a win-win outcome: investors receive solid return on their investment, while founders increase their ownership stake and participate more fully in the company’s future growth.

Here are several brief examples from other past clients that produced dramatic long-term results:

  • A minority debt and equity investor passed away, and the estate requested repayment at par value (the original investment amount). Over the next decade, the company EBITDA grew from $2.5 million to over $50 million.
  • An owner bought out a 50% equity investor for $5 million by exercising a pre-existing buyout clause (another good idea). The investor achieved a 3x return, but within 18 months, the owner took his company public and sold 30% of the company’s equity for $60 million at a $180 million valuation.
  • A consumer brand and retailer proactively approached its joint venture partner in a foreign subsidiary to buy out its ownership stake. The partner agreed and even financed the transaction with a seller note. Over the next years, total company EBITDA grew from $12 million to $80 million.

If you have a growing business with investors interested to exit your company’s growth journey, now may be an excellent time to consider a minority shareholder buyout.