Friday, March 30, 2012

Buying 51% is good enough

I've talked about many turds in the past.  A common trick in the private equity world is to buy 51% of the company, which typically gives you control, but more importantly, if you own 51% (and control), you can sell your 51% of the company to someone else and they don't have to sell your 49% in the deal.

In other words, your money could stay "in the game" forever, while the 51% owner takes their money off the table.  I've seen this happen a number of times. Put another way, you might never see your 49% turn into cash.

So once you sell 51% of your company (or if you've been diluted and someone else now owns 51%), you've sold (or given away) the company!  So how do you buy a company for 1/2 price?  You only need to buy 51%!  Seller beware!

I also mentioned this in my "Shark Tank" article a few months ago.  If you want a story that will turn your stomach, read that one!



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