Minority IPO - Explained
What is a Minority IPO?
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Table of ContentsWhat is a Minority IPO?How does a Minority IPO Work? Benefits of a Minority IPOAcademic Research on a Minority IPO
What is a Minority IPO?
An initial public offering (IPO) is a form of capital raising by a parent company by selling newly-issued shares to investors. In a minority IPO, a parent company sells off the shares of its subsidiary but still retains the majority stake in the company. Minority IPOs are used by large corporations or parent companies that have many subsidiaries under them. If a parent company wants to spin off one of its subsidiaries, it sells its shares to investors but maintains a majority stake in the company. Investors who purchase shares of a company through a minority IPO are the minority owners of the company while the parent company has the controlling share.
How does a Minority IPO Work?
A minority IPO is otherwise known as a partial IPO, it is an approach used by parent companies to raise funds by spinning off one of the subsidiaries but still retaining the majority shares of the subsidiary. The idea behind a minority IPO is that a parent company raises substantial capital through the sale of shares of its well-rated subsidiary but does not lose the controlling power. In some cases, the parent may dissolve the majority shares slowly and in other cases, it holds on to the shares forever, especially if the company is highly-rated. The majority shares held to protect the subsidiary from bad management, takeover or acquisition.
Benefits of a Minority IPO
The benefits of a minority or partial IPO are the following;
- It is an avenue for a parent company to raise a substantial amount of capital by spinning off one of its subsidiaries.
- The company raises capital without losing a controlling stake in the subsidiary.
- The decision-making rights over the company are not sold during a minority IPO.
- A minority IPO may be used by parent companies to prevent previous owners of the subsidiary from gaining control of it.
Generally, parent companies use minority IPO as a strategy to prevent parties who might have a vested interest in taking over the company from doing so. It is also important to know that after a minority IPO is completed, the company might need time to develop to be a publicly held company.
Academic Research on a Minority IPO