Acquiring a controlling stake directly vs. establishing NewCo

intermediary profile

August 11, 2022

by an intermediary from York University in Toronto, ON, Canada

We are acquiring a controlling stake in a company and are contemplating structure, i.e. direct acquisition of the target's shares or creation of NewCo as the surviving entity.. Are there any cases where acquiring a majority interest in a company directly is preferable to creating a NewCo and having the minority shareholders rollover into the new entity?

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Reply by a searcher
in Chicago, IL, USA
There may be some value, but there is typically much more in the New Co.. For example, if there are any MSA or larger service contracts, they often can’t transfer without renegotiating, which can be a mess.
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Reply by a searcher
from London Business School in London, UK
Yes the existing entity will have a track record which usually makes borrowing easier. Also since it is in fact growth capital and existing share holders remain, it is perceived as less risky for lending
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