The difference between buying a business and buying into a business is very simple. When you take 100% stake you buy it. When you take less than full ownership you are buying into it. This rule does not apply to large companies or listed ones. Let me elaborate three ways of buying into a business:
1. Making a Strategic Partnership: This is the time tested method of buying into a business. Instead of taking large portion of the shares or equity you lock in for a 25 to 30
% stake. Before getting into negotiation with the prospective business owners you should evaluate what kind of synergy you will have in partnering with them. You must concentrate upon several aspects chiefly, marketing, operations, human resource, systems and finance. Strategic partnership is only possible where the interest of you and the present owners can tally together. By any chance there is no interest tangent possible between you and the owners then you should not proceed further
2. Floating a Joint Venture: In this case you buy out 50% of the stake of the current owners and morph the business into a joint venture. Joint Ventures often called as JVs, though not very common are very effective means of combining strengths of two parties. Similarly unlike in the case of strategic partnership you would not be wholly concerned with the past performance of the business. It is the future that matters. How the business under a JV would turn out to be is a cardinal question. Such JVs must eliminate if not neutralize any current weaknesses of the business and maximize the future strengths of the business. For example, let us assume that the business order book is fairly seasonal; this is a nagging weakness now. After the JV is floated you must be able to alter that seasonal nature of sales and generate regular orders throughout the year
3. Taking Majority Control: A popular method often sought after by prospective buyers is taking majority stake in a business. Such a majority can come about if you take 51% or more of the equity. To be on the safe side it is always better to take between 60 to 70 % of the equity control of a target business. In this case you have to handle two issues: one relates to what to do with the minority shareholders or owners, the other is to see how you can handle transition of control from the selling party. It is common knowledge that once controls changes hands there would be quite rumbling from the minority. They generally resist changes and fear that the new management might neglect their interest. You have to be ready to face this situation and must make every effort to take them into confidence. You have to treat them equitably as well. The second issue of transition tends to be much tougher. You have got too many irons in the fire. There are parties like customers, creditors, staff, lenders, bankers and host of others who like to be assured that the new management would not act counter to their interest and purposes. Moreover, seamless integration of the business systems prevailing in the target business including finance, operations and marketing into your own systems could be a nightmare.
4. Choice: What is the best way of buying into a business depends on the amount of money you have and the level of contribution the target business could make towards your own objectives. More than anything else, you should evaluate a key driving force. That is your cosmics. It is better for you to choose the appropriate method by evaluating your cosmics. You know, that, cosmics are aspects residing within you shaping and influencing your business throughout. If your cosmics support a simple ownership with benefits you settle for a strategic partnership. On the contrary, if your cosmics dictate that you should go for high risk taking then choose either JV or majority control whichever that suits you fine.
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