In an M&A market characterized by buyer caution and narrowing liquidity pathways for sellers, flexible minority stakes transactions are proving a valuable option for dealmakers in the US and Europe
In an M&A market that has been buffeted by macroeconomic dislocation, higher capital costs and investor caution, strategic minority stakes transactions are increasingly keeping deal activity flowing.
In the US, minority stakes deal activity proved remarkably resilient through the higher interest rate environment seen in 2023 and through early 2024 and, more recently, in the face of tariff uncertainty. US minority deal value climbed 53.5 percent last year, rising from US$162.1 billion in 2023 to US$248.9 billion in 2024. Year-on-year deal volumes were static, with approximately 3,100 transactions in both years.
This momentum has carried into 2025, with US minority deal value as of June 17 growing by 61 percent year on year, to US$169 billion, though this figure was inflated by the landmark US$40 billion minority investment in generative AI technology developer OpenAI.
Strategic minority stakes investing also gained ground in Europe in 2024, with deal value rising 4 percent year on year, to US$142.8 billion, while deal volume held steady, with 3,490 minority transactions. As of mid-June this year, investment has been roughly on par with H1 2024, totaling US$77 billion, compared to US$80 billion last year.
A useful deal structure in volatile times
Minority deals, where buy-side investors acquire non-controlling stakes of less than 50 percent in target businesses, have been a useful tool for dealmakers to spread risk and bridge valuation gaps between buyers and sellers in a challenging M&A market.
The higher interest rate environment slowed control acquisitions, with buyers reluctant to pay full valuations for companies in an uncertain market, while sellers have resisted crystallizing discounts by selling at the bottom of the market.
Minority deals structures, however, have helped to narrow the delta between buyer and seller expectations. For sellers, selling a partial stake in a business has helped them realize some liquidity, while retaining exposure to future growth and any appreciation in asset valuations in the event of a market recovery. Buyers, meanwhile, can share risk by taking only a partial stake in the business and aligning interests with the seller and the relevant business.
A liquidity lifeline for sponsors
Minority deals have been particularly advantageous for private equity sponsors that have been under growing pressure to realize ageing portfolios and accelerate distributions to investors. According to Bain & Co analysis, PE distributions as a percentage of net asset value came in at just 11 percent in 2024—the lowest ratio in more than ten years.
Minority stake sales have helped to alleviate some of that pressure and have been among the primary alternative exit routes available to GPs through a period of slower buyout activity and shuttered IPO markets. According to Bain & Co, almost a third of the companies held in portfolios have realized liquidity through either minority stake sales, dividend recapitalizations, secondaries deals or net asset value loans, reaping US$410 billion of capital via these channels.
Indeed, when mainstream exit routes have not delivered, minority sales have been a fallback option to generate distributions for LPs. Permira, for example, sold a minority stake in €2.2 billion (US$2.5 billion) luxury fashion brand Golden Goose after opting out of plans to list the business.
Minority deals, however, have offered not only exit flexibility to firms but also a way to sustain deployment in a challenging deal market. For example, buyout firm Hellman & Friedman acquired a minority stake in Mehiläinen, the Finnish health and social care business, investing alongside incumbent PE backer CVC Capital Partners.
Other minority deals in which incoming PE buyers invested behind incumbent sponsor shareholders include healthcare investment firm Archimed taking a stake in French veterinary pharmaceutical company Ceva Santé Animale, as part of a US$5.9 billion funding round for the company. Incumbent investors in Ceva Santé Animale, including PSP Investments, Temasek and Téthys Invest, increased their stakes as part of the deal, highlighting how minority deals also provide investors with scope to raise exposure to assets as they develop over time.
Fostering relationships for strategic buyers
For strategic buyers, minority deals have also played an increasingly important role in their M&A strategies. Investing in minority deals provides companies with a route to building early exposure to potentially game-changing technologies in their sectors. It also allows them to share the upfront costs that come with the development of new technology, by forming strategic partnerships with other investors.
Microsoft, for example, was part of the consortium that backed the record-breaking US$40 billion funding round in OpenAI that valued the business at US$300 billion. The round will finance further AI research and help OpenAI scale up its computing infrastructure. As a minority stake investor, Microsoft has gained exposure to a key business in its core technology market, while sharing investment and development costs with the other financial and technology investors that backed the funding round, including SoftBank Group, Coatue Management and Thrive Capital.
Another AI business, Anthropic, also secured investment from a consortium of strategic and financial investors to back its recent US$3.5 billion funding round, further illustrating the benefits and collaboration opportunities for minority investors.
Minority deals also support companies expanding into new markets and product lines, providing a platform to build market expertise and insight, without the rigors of taking on full ownership. Brewer Heineken, for example, acquired a minority stake in UK energy drink brand Tenzing, supporting a strategy to expand into new drinks verticals beyond its core beer business.
Managing the risks
For all the benefits that come with minority deals, executing transactions can come with complexity and risk. Non-controlling stake purchases can still trigger many regulatory clearance obligations and other issues. Minority deals do not provide the same direct influence over management teams and exit timelines as control deals, and investors need to recognize that key business decisions can require compromise with majority owners and fellow minority stake investors, as well as the board and management of the company.
As minority shareholders, investors may also not be entitled to the same levels of company information as majority shareholders and can also be exposed if majority shareholders decide to sell, potentially leaving them stranded.
These risks can be mitigated through deal terms and legal agreements, and experienced minority investors will negotiate protections that include mandating how valuation is set, should the majority investor want to sell, as well as tag-along rights that allow minority investors to sell on the same terms as other exiting shareholders. There is also scope to negotiate board seats and information and reporting rights, to avoid information asymmetries between majority and minority players.
But in a market where M&A deals and IPOs remain difficult to land, buyers and sellers will be willing to shoulder the complexities that come with negotiating minority deals to unlock the flexibility and liquidity that such deal structures offer.
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