From the perspective of a LMM sponsor: let’s say there are two companies, A and B. A is 100% owned by a single shareholder; B is owned 90% by one shareholder and 10% by a different, completely passive shareholder. How differently Will these two companies be viewed by potential investors? I’m guessing dealing with a single owner would be easier, but is that to the extent that PE firms will always prefer single ownership? Or do they not really care?
Additionally, how much weight would investors give to the valuation at which the minority stake was sold, particularly if it was at in the near past?
It is clearly a case by case issue, however I believe the sponsor would generally be indifferent between the existing equity ownership structure based on # shareholders.
From a logistics perspective, if the major shareholder is interested in a transaction, they will more likely than not encourage the minority equity investors to engage with the potential acquirer.
Having a single shareholder has its benefits from a logistic POV however also has limitations in that any equity investment in the business must go through that shareholder.
Conversely, if there is a 51% majority holder who is sceptical about the deal, a number of accepting minority shareholders may encourage the majority shareholder to sell into the offer as well (thereby assist the sponsor in this example).
Equally, if there are no majority shareholders (and instead a small number of minority but controlling shareholders i.e. 5 @ 20% each), the sponsor may find this attractive as they can procure majority ownership without getting approval from all parties.
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With respect to valuation, I think investors would use the implied 100% equity valuation as a legitimate benchmark if the minority stake is >10-15%. A recent example would be GA's 20% stake in U.K. based Gymshark.
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