Liquidity for Illiquid Investments
Investments in certain private companies are inherently illiquid for shareholders. They are even more illiquid for minority shareholders who, unlike majority shareholders, are often subject to restrictive covenants that prohibit them from selling their shares without the consent of the majority shareholders.
That said, events might occur, or situations might change resulting in the need for a minority shareholder to exit. Common situations include:
- death resulting in the estate needing to liquidate its position;
- bankruptcy of an investor;
- breach of a shareholders’ agreement;
- cessation of employment;
- falling-out between investors; or
- just a desire to divest and move on from the company.
Of course, not many investors want to invest in a private company without having the ability to control their investment. This makes it challenging to get liquidity to take out a minority shareholder. That said, it can also be viewed as an opportunity to bring on new “smart money” to help your company reach its strategic goals.
This money can come via debt financing used to facilitate a share buyback or it could come via a secondary (having the exiting shareholder sell their shares to a third-party buyer).
In these situations, it is important to remember that you are not the first person to encounter shareholder issues and that, although not obvious on the surface, there are options to bring in liquidity and help your company move on from these scenarios that are often time consuming and stressful.
We are here to help guide you through the process so you can focus on what matters most.
Please reach out to Connor McGarry at cmcgarry@welchcapitalpartners.com to learn more about Welch Capital Partners.
Liquidity for Illiquid Investments
Investments in certain private companies are inherently illiquid for shareholders. They are even more illiquid for minority shareholders who, unlike majority shareholders, are often subject to restrictive covenants that prohibit them from selling their shares without the consent of the majority shareholders.
That said, events might occur, or situations might change resulting in the need for a minority shareholder to exit. Common situations include:
- death resulting in the estate needing to liquidate its position;
- bankruptcy of an investor;
- breach of a shareholders’ agreement;
- cessation of employment;
- falling-out between investors; or
- just a desire to divest and move on from the company.
Of course, not many investors want to invest in a private company without having the ability to control their investment. This makes it challenging to get liquidity to take out a minority shareholder. That said, it can also be viewed as an opportunity to bring on new “smart money” to help your company reach its strategic goals.
This money can come via debt financing used to facilitate a share buyback or it could come via a secondary (having the exiting shareholder sell their shares to a third-party buyer).
In these situations, it is important to remember that you are not the first person to encounter shareholder issues and that, although not obvious on the surface, there are options to bring in liquidity and help your company move on from these scenarios that are often time consuming and stressful.
We are here to help guide you through the process so you can focus on what matters most.
Please reach out to Connor McGarry at cmcgarry@welchcapitalpartners.com to learn more about Welch Capital Partners.
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