Taking a Minority Position – Safeguards to Consider

By Tom Cobery
In September 23, 2014

If you are presently outsourcing a reasonable amount of business that is not a core market for you, you might want to partner with a company who does focus on this market. Partnering may mean making an investment in the partner company and becoming a minority shareholder. Some items you should consider before making this investment:

  1. Can the company produce the outsourced business with its present equipment and at a cost-effective price?
  2. What will be the makeup of the board of directors? When would management need to seek board approval for capital expenditures, management compensation, or other critical issues facing the company?
  3. What rights would you have to require the company to re-purchase your minority interest and in what time frame? What method would be used to determine the value of the minority interest?
  4. In the event that the majority shareholder would offer shares for transfer or sale to an outside party, would the minority shareholder have a right of first refusal to purchase those shares?
  5. If a sale by the majority shareholder to the minority shareholder was contemplated, how would the revenues that the company is receiving from the minority shareholder be valued?
  6. How would the minority shareholder receive any remuneration on an annual basis, i.e. management fees; dividends; etc.?

These are a few issues that should be pre-determined before taking a minority interest. The more issues that can be negotiated and agreed to upfront, the better it will be for all concerned.

If you want to chat, give me a call at 201-523-6326 or e-mail me at tcobery@napl.org.

Tom Cobery

Dealing with the day-to-day needs of running a busy printing operation often leaves company leaders little time to plan for the future of their enterprises on their own. Tom works with chief executive officers and senior management executives in the Tag and Label Industry to develop growth opportunities through strategic transactions, new markets, or new service opportunities. Available for consulting on individual projects, he can also be engaged to serve as an Advisory Partner, helping executives guide their company into the future, serving as an impartial sounding board for ideas, and working with them to set the right course for continued growth and greater profitability. Tom’s personal experience as a Tag and Label Industry company president and chief executive officer, plus his extensive networking with other industry executives through his volunteer leadership activities with the Tag and Label Manufacturers Institute (TLMI) give him a unique perspective on the tough issues today’s company leaders face in this specialized segment. Companies engaging Tom will find his insight and independent advice an invaluable asset in helping them achieve their growth and profitability goals. More than a consultant, Tom Cobery wants to be your trusted Advisory Partner.

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