An often-overlooked way to create value is increasing ownership in your company through minority shareholder buyouts, particularly 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.
This opportunity is especially relevant for profitable companies or those just beginning to generate profits, as they can often support debt financing that can be used to acquire investor ownership. Proactively approaching shareholders with a buyout offer can create a win-win outcome: investors receive a solid return on their investment, while founders increase their ownership stake and participate more fully in the company’s future growth.
We recently helped a company execute this strategy. As part of a new financing package for an acquisition, the founders also financed the repurchase of approximately 10% of the company’s equity from select investors and shareholders, increasing their ownership stake to roughly 85% of the outstanding stock.
It is still early, but transactions like this have historically created significant long-term value for some of our clients. To attest to this, here are a few other client examples:
- A minority debt and equity investor passed away, and the estate requested repayment of their capital at the original amount of investment (par value). The founders paid the capital back and over the next 10 years grew annual EBITDA from $2.5 million to $50 million+.
- An owner bought out a 50% equity investor for $5 million by exercising a pre-existing buyout clause (another worthwhile strategy). The investor achieved a 3x return, but within 18 months, the owner took the company public and sold 30% of the 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 acquire its ownership stake. The partner agreed and even financed the transaction through a seller note. Over the next four years, total Company EBITDA grew from $22 million to $83 million