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Frequently Asked Questions

Non-control equity and debt financing for middle market companies.

NON-CONTROL EQUITY

For middle market and lower middle market companies, the optimal way to bring in a meaningful amount of new equity capital is to have an institutional investor make a non-control equity investment (also known as minority equity). Private equity firms, family offices, and other institutional investors are increasingly interested in this relatively new financing alternative.
Non-control equity is an investment in which a private equity firm, family office or equity-oriented credit fund acquires a non-control stake in a privately held company, typically between 25% and 49%. The owner keeps majority ownership and operational control. Unlike a traditional private equity buyout or control transaction, the owner is not handing the keys to a new owner or answering to a new boss. Investors take a meaningful stake and typically receive certain protective rights, but strategy and day-to-day decisions remain with the owner. This is a critical distinction.
As the new investor will take a meaningful stake in the company and receive certain protective rights, it is paramount that the owner(s) of the company engage a capital advisor that is experienced in this specific type of investment, which is very different than the traditional control sale or buyout. A capital advisor experienced in non-control equity financings will ensure that: (i) you receive the highest possible valuation for the stock being sold; (ii) you understand the different alternative structures for the investment; (iii) you understand the level of operational involvement that the investor will require; and (iv) you have an exit strategy for the investor that protects the existing owners.
Owners often turn to non-control equity to take some cash off the table, fund growth or an acquisition, buy out a partner, plan for succession or reduce leverage, all without giving up control or taking on more debt than the business should carry. Furthermore, owners who partner with the right non-control investor and grow the business will likely realize more value at an eventual exit than they would by selling today.
In many cases, yes. Non-control transactions often combine primary capital, which is invested into the company to fund growth, with secondary proceeds paid to existing shareholders. The right mix depends on the company’s needs, the investor’s appetite and the overall structure. Reedland helps owners determine how much liquidity is achievable and what trade-offs come with it.
Non-control investors generally seek protections rather than control. These can include board representation or observer seats; consent rights over major decisions such as large acquisitions, new debt or a sale of the company; liquidation preferences; information rights; and a path to eventual liquidity. Given these structures are highly bespoke, terms vary widely. Part of Reedland’s role is helping owners understand market terms and negotiate a structure that protects their interests and preserves their ability to run the business.
The investor universe includes private equity firms, family offices, structured equity funds, and equity-oriented credit funds, each with different return targets, hold periods and required levels of operational involvement. Reedland runs a targeted, proprietary process to identify investors whose capital, structure, sector experience and approach fit the owner’s goals, and then manages outreach, diligence and negotiation through closing.
Broad auctions are designed to either sell a company or a controlling interest in a company to the highest bidder, where maximizing the number of buyers can drive price. Non-control equity transactions are focused on finding the right long-term partner, so cultural fit, structure and terms matter as much as valuation or investor return. A targeted process focuses on capital providers whose investment criteria, approach, sector expertise and track record align with the company’s goals. This tends to produce stronger, more actionable proposals while protecting confidentiality and limiting the diligence burden on management.
Nearly every non-control investor needs a path to liquidity, typically within five to seven years and sometimes longer for family offices. Common exit routes include a future sale of the company, a recapitalization, or a buyback of the investor’s stake by the company or owner at a pre-agreed upon return or fair-market multiple. These important financial terms should be clearly understood at the outset, and Reedland helps owners structure them with put and call options and/or other buyback criteria to fit existing owners’ long-term plans.
Return expectations vary with the investment’s structure and risk as well as investment size. Structured equity and equity-oriented credit funds typically require more downside protection than private equity firms or family offices and, in exchange for contractual yield, generally accept lower returns. Those investors typically target IRRs of 15%–18% and a multiple on invested capital (MOIC) of 1.75x–2.25x. Private equity firms and family offices are typically willing to share more of the risk and upside alongside the owner and seek higher returns driven by growth in the company’s value, generally targeting IRRs of 20%–25% and a MOIC of 2.0x–3.0x. These return targets typically assume a five- to seven-year hold, though timing varies by opportunity.

DEBT FINANCING

Reedland arranges senior debt, unitranche, second lien, mezzanine and other junior capital for middle market companies, independent sponsors and private equity firms to support acquisitions, recapitalizations, refinancings, growth initiatives and restructurings. Since Reedland also raises non- control equity, it can evaluate the full capital structure and identify the combination of debt and equity that best fits the business and the owner’s goals.
Today more than ever, there are literally hundreds of commercial banks and private credit funds that companies can approach directly at conferences, through social media, or through warm introductions from its attorneys, accountants, or other services providers. However, the vastness of this lending market has led to a far wider range of structures, leverage levels, and capital flexibility that many owners are not aware is possible given the amount of competition for quality companies among lenders. By running a competitive process across a very targeted group of lenders chosen by Reedland based on its 25+ years experience in middle market lending, we will likely improve terms, structure and certainty of closure. Reedland also works closely with management to prepare materials, manage lender communications and lead negotiations, allowing the owner to stay focused on running the business rather than having the process become a full-time endeavor for senior management.

WORKING WITH REEDLAND

Reedland regularly partners with attorneys, accountants, wealth managers, investment bankers and other trusted advisors and views them as an integral part of the deal team. Reedland keeps advisors informed throughout the process, coordinates with them on diligence, tax and legal structure, and respects existing client relationships.

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