Minority Investors & Shareholders as a Partial Exit Strategy

Developing an exit strategy framework is essential for any business owner in the aerospace and defense industry who desires to leave the company on their own terms. Also called business transition planning or exit planning, preparing for a change in ownership should always be done in a way that maximizes enterprise value. Many defense contractors increasingly seek the advice of professional exit planners as a way of ensuring a profitable transfer. An exit planner is someone who is specially trained in how to become intimately knowledgeable about a business with the ultimate goal of making it both more attractive and more valuable in the eyes of prospective buyers.

We, at High Stakes Partners, would like to take this opportunity to discuss a particular exit strategy framework that is generally geared toward company leaders who’d like to keep working but also reduce their ownership interest. It is called the “partial” exit, and it often involves bringing in a minority investor who can make it possible for you to take both risk and liquidity off the table. Adding a minority investor is a business transition planning strategy that represents an attractive middle ground for anyone who wants to reduce their risk exposure yet not fully relinquish company control.

A Common Method: Adding a Minority

One method of achieving a partial exit that has become
prevalent is pursuing a leveraged capitalization, or a leveraged recap. A
leveraged capitalization is when a company partners with a private equity group
that invests its own equity in conjunction with debt provided by one or more
outside lenders. In essence, when a company pursues a leveraged capitalization,
it borrows money to buy back previously issued stock and in doing so alters the
character of its capital structure.

What, exactly, does a leveraged capitalization have to do with
adding a minority investor and pursuing a partial exit? The current reality is
that many investors are eager to accept a minority stake in well-run
businesses. However, selling a minority stake in your company to an outside
investor such as a private equity group should only be undertaken if the PEG
has a similar vision for the company and is willing to work collaboratively
with you as a minority stakeholder.

It should be noted that while PEG investors are usually looking for a controlling, or majority, stake in your company it is possible to find ones that specialize in minority positions. 

It’s also possible to find other classes of minority investors.  Examples of these would be individuals or family offices.

About High Stakes Partners

Taking your company to the next level in the realm of government contracting is easy – with help from High Stakes Partners. The highly skilled defense advisory experts on our team have previously been in your shoes and thus have the experience necessary to help you navigate this oftentimes challenging industry. In addition to helping clients develop exit strategy frameworks such as bringing in minority investors, selling to third parties, and developing ESOPs (employee stock ownership plans), we proudly provide a full complement of defense contractor consulting services. These include:

Strategic Corporate Development

This encompasses executive attraction and retention, board
of director support, Small Business Innovation Research (SBIR) proposal
development, and employee engagement strategy development.

Business Strategy Consulting

We at High Stakes Partners deliver unparalleled value to
both founders and C-suite executives who require expert advice to help turn
industry challenges into lucrative opportunities. Our experts can help you
develop a plan for growth, enhance the value of your enterprise, and assist
with all aspects of business
transition planning and leadership succession planning.

Defense M&A

There are many potential pitfalls along the defense mergers
and acquisitions journey. Whether you’re on the sell or buy side, High Stakes
Partners can help make sure the process goes smoothly.

Contact us Today

At High Stakes Partners, business is our passion while federal compliance advisory is our specialty. We invite you to start a confidential conversation with us by clicking here and sending us a message.