Most private equity investors seek majority stakes, or at the very least, large minority holdings.
Livingbridge has a strong heritage in backing founder-led growth businesses and most of our holdings are minority positions. We are now promoting our novel “True Minority” approach where we are actively seeking the right situations where we can hold equity stakes of just 10-25%.
We have developed this product after talking to founders and corporate finance professionals about a gap in the private equity market. Some larger, established, founder-owned companies, can be turned off private equity by the idea of losing control of their business. Yet there are many scenarios in which a small minority investor could solve a problem, open up an opportunity or simply release value to other shareholders. The Livingbridge “True Minority” approach is aimed at plugging this gap and creating a solution;- smaller equity stakes and a lighter touch legal framework that match the size of the equity holding.
What scenarios have you seen that might suit the True Minority approach?
We have had numerous discussions with companies in our network over the last 18 months and have found five common drivers that can create a need for a True Minority solution.
- Creating a capital realisation for a Founder. Many founders would like to realise some value from their shareholding prior to contemplating a full exit. In this scenario, most will wish to maximise their continuing equity stake and upside for the following growth phase and some are willing to accept modest dilution to attract a professional partner who can support the next phase. We love these scenarios. Our experience is that founders remain just as committed after realising some capital and sometimes are even more ambitious for their business than before. It’s a win-win solution.
- Replacing a shareholder who wishes to exit early. Over the life of an established company, we see many examples of shareholders who are no longer as committed as the founder principal. For example;- a family member, a trade investor, a co-founder or an early backer. It can be frustrating when shareholders are not all aligned. We see True Minority as an ideal way of enabling an early exit for some shareholders, replacing them with an aligned, experienced, well-funded and objective partner.
- A management buy-out where only a minority third party funder is required. Many MBOs need a large equity investment relative to the value of the business and therefore a majority investor.. But not all. We have seen several MBOs where management are willing to rollover considerable value. Most traditional PE firms would seek a larger minority holding. We have structured some solutions where we can hold a smaller True Minority equity stake to maximise the holding for the rollover management.
- Backing a business to fund M&A. Acquisitions can transform value, especially in some larger markets where organic growth can be pretty hard to deliver. We often see companies make a few acquisitions and then run out of firepower, and risk losing out to a well-funded competitor acquirer. A True Minority investment adds firepower and brings 20 years of Livingbridge acquisition experience, but with modest dilution.
- Strengthening a balance sheet. Given the recent challenges of Brexit and Covid, some fundamentally strong and profitable businesses have some stretch in their balance sheets that means achieving projects like the ones above are harder to deliver. Equity funding with modest dilution can present an attractive solution.
So which companies might fit best?
As a smaller shareholder, we are not expecting all the rights and controls that we would expect with a much larger stake. This means that we want to invest in larger, resilient businesses making at least £5m – £30m EBITDA; those with a strong management team, a proven business model and its own growth plan.
With 20+ years of experience in supporting growth and helping businesses realise their potential, we do also want to feel welcome around the board table. We have built internal capabilities based on that experience with specialists in areas such as senior talent recruitment; optimising performance through data; and mapping markets for acquisitions.
Our job would be to support the business to achieve its ambitions. This will often include acquisitions, international growth, product extension or other growth strategies.
True Minority is simply Livingbridge applying its experience, capabilities and firepower as an investor for founders who are not thrilled by the prospect of selling a larger, controlling stake but who still want an experienced, skilled investor to work alongside them.
If this sounds interesting – please feel free to get in touch to discuss this further.