Acquisitions by Purchasing a Controlling (But Less than 100%) Interest

While most acquisitions take the form of a merger or stock/asset purchase that results in the buyer-acquiring full control over the equity interests and/or assets associated with the target business it is also possible to break into a new business area by purchasing a controlling (but less than 100%) interest in the target.  For example, if the target is owned by a single shareholder who also operates the business the transaction may be structured to permit the buyer-acquirer to purchase a sufficient number of shares (e.g., 70%) to give it a controlling voting interest over management of the affairs of the target while allowing the selling shareholder to retain a minority interest and continuing serving as a key executive of the target.  The former sole shareholder’s minority interest serves as a performance incentive since he or she retains the right to share in future increases in the value of the business.  Incentives for other executives and key employees can be created by both parties to this agreement by adopting a stock option or other form of bonus performance plan.


The first step in such a transaction should be a letter of intent that addresses key terms and conditions to closing including price and payment terms, post-closing management of the target, due diligence, negotiation and completion of definitive agreements, consents and approvals, escrow requirements and procedures, retention of key employees, approval of acquirer’s financing for the transaction and other issues.  Perhaps the most important section of the letter of intent is a detailed listing of the specific conditions precedent to the closing of the proposed acquisition.  Among the matters that should normally be covered from the perspective of the buyer-acquirer are the following:

  • The satisfactory completion of a due diligence investigation and acquisition audit by the buyer-acquirer showing that the assets of target and any actual or contingent liabilities against those assets, and the prospective business operations by the buyer-acquirer of the target’s business are substantially the same as currently understood by buyer-acquirer as of the date of the letter of intent.
  • A satisfactory determination that the acquisition and prospective business operations by the buyer-acquirer of the target’s business will comply with all applicable laws and regulations, including antitrust and competition laws.
  • Completion of all required approvals and consents from both parties and other interested stakeholders including governmental entities, utility providers, railways, material vendors, lenders, landlords and customers.
  • The absence of material litigation or adverse change with respect to the transaction and the ordinary business activities of the target.
  • The buyer-acquirer must be able to enter into satisfactory employment agreements with specified key employees of the target.

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