Business Owner Resources

How Could Minority Equity Investment Help Your Business?

Why Minority Equity Makes Sense Right Now

We have spoken with a number of business owners recently who have expressed an interest in Minority Equity. We think this makes all the sense in the world.

Why?

Many owners do not think now is the right environment to consider a sale, or simply may be years away from an exit. However, there are a few good reasons to consider a Minority Equity investment:

• Invest in your growth by bolstering your corporate team, expanding new markets, or executing an acquisition


• Take chips off the table to provide personal diversification


• Gain a partner with alignment of goals and skills to bring to the table

It is interesting to see large, sophisticated companies pursuing this strategy. Recently, U.S. Foods, the 2nd largest food distributor in the U.S. with over $25bn in revenue, closed on a sizable Preferred Equity investment from KKR. U.S. Foods did this to “further fortify [their] balance sheet during the current difficult environment”. Could U.S. Foods have brought on more debt, presumably at a cheaper cost? Probably. But their calculus was that it would be prudent to not strain their cash flows and covenants and that equity would provide more flexibility and a value-additive, long-term partner in KKR.

While U.S. Foods is quite a bit larger than Georgia Oak’s target partner size, we think the rationale for Minority Equity to be even more pronounced in the middle market. While banks do have vastly better balance sheets than they did in the Great Recession, we have already seen a general tightening of credit appetite levels. Personal guarantees will be of increasing importance, which can further expose an owner’s personal financial stability.

Putting our cards on the table - why is Georgia Oak interested in doing this?

It’s very common for great companies to not be for sale, so this allows us an opportunity to lock arms with some of Georgia’s best. In addition, we see this as a way of de-risking our investment - we benefit from the continuity of an owner or management team that wants to stay in place with a high degree of alignment.