Acquiring 100% stake is mandatory for traditional search funds?

searcher profile

January 07, 2022

by a searcher from Fundação Getulio Vargas, São Paulo - Escola de Administração de Empresas de São Paulo in São Paulo, SP, Brasil

We have been finding several entrepreneurs who want to keep a minor stake at the companies to help and also to earn the upside. Is it doable for traditional searchers? What are the setbacks? Anyone can share a case?

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commentor profile
Reply by an investor
from Harvard University in Dallas, TX, USA
We purchased 80% of Yates which was a troubled company at the time. If you look up hbs case walker insurance you can read the details. We then subsequently found a problem and the owner was 82 by then, so we spread out remainder payments over 8 years to his widow. Before we sold in April this year we'd paid the final payment 6 months before. It worked really well. We had set a ceiling price originally at whatever the ebitda went to would be at the original multiple. That never kicked in, as we were reinvesting all the time, so it was done slightly differently. However capping the upside to something like that is a good way of making sure your impact is not fully shared with the prior owner who has a lot less risk
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Reply by a searcher
from Harvard University in Omaha, NE, USA
No, not mandatory, but I highly recommend a 100% buyout. I expound on why 100% in the comments section of this post: https://www.searchfunder.com/post/best-practices-for-agreeing-for-a-minority-share-for-the-seller

There are also many good comments from other posters offering other perspectives.
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