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Answer:
1. Save Money
You have the opportunity to pursue external growth with a company that may be too expensive or too big for you to acquire in its entirety. For PE firms that are struggling to find financing, acquiring minority stakes allows them to pursue acquisitions despite limited funding.
2. Spread Risk
If you, like most business leaders, have limited financial resources to invest in acquisition, you can acquire several minority interest to spread your risk, while remaining within your budget.
3. Retain Key Management
It’s unlikely that the entire management team will leave when you acquire a minority stake. These experienced team members may stay on and continue adding value to the company for years to come.
4. Open Doors
Minority interest allows you to pursue opportunities that may not be open to 100% acquisition. It would be much more difficult for a PE firm to outright acquire a publicly traded company than it is slowly acquire minority stakes. For strategic acquirers, there may be not-for-sale owners who are not interested in giving up their entire company, but may be open to selling a piece of it.
5. Execute Your Strategy
Minority investment can be used to eventually acquire a majority stake on even the entire company. It’s common to build in options for the buyer to acquire additional stakes as time passes. For example, Disney acquired a 33% stake in video streaming company BAMTech and has the option to acquire a majority stake in the future.
Explanation:
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