Minority IPO

What Is a Minority IPO?

A minority IPO, otherwise called a partial IPO, is a type of initial public offering (IPO) in which a parent company partially divests itself of one of its auxiliaries.

Not at all like a traditional spinoff transaction, minority IPOs include the parent company holding a controlling share in the recently listed subsidiary.

How Minority IPOs Work

Minority IPO transactions can be an effective way for parent companies to acquire better valuations when they feel that a portion of their subsidiary businesses are overall constantly undervalued by the investment community. This situation is known to emerge as to large conglomerates like General Electric (GE) or Berkshire Hathaway (BRK.B), which are home to several distinct and complex business operations. In such cases, investors and analysts could battle to comprehend the complexities of the different businesses in the parent company's portfolio, leading a few auxiliaries to be misconstrued or neglected.

Listing these auxiliaries as separate publicly traded companies frequently brings about the veered off business being valued more luxuriously than was the case prior to its separation from the parent company. One potential clarification for this phenomenon is that the financial statements of the recently separated company offer greater lucidity for investment analysts as compared to the consolidated financial statements created by the parent company. Additionally, investors might be drawn to the specific business model of the new company without essentially being interested in the numerous different businesses in the holding company's portfolio.

Contingent upon how the parent company originally acquired the subsidiary, the minority IPO may likewise be utilized for of keeping the previous ownership from recapturing control of the subsidiary. For instance, on the off chance that the parent company acquired the subsidiary through a merger or acquisition, the previous owner might have a vested interest in recapturing control. Under these conditions, a minority IPO structure could be utilized as part of a [strategy to forestall this takeover](/hostile to takeovermeasure) from happening.

Illustration of a Minority IPO

XYZ Corporation is a noticeable holding company that claims a diversified portfolio of businesses. One of its auxiliaries, ABC Technologies, has recently drawn in substantial media consideration due to a major product innovation.

At its latest annual meeting, several of XYZ's shareholders communicated concern that XYZ's market capitalization failed to mirror the true value of this promising subsidiary. They contended that this was possible due to XYZ's complex consolidated financial statements, which fail to give investors and analysts a reasonable perspective on the fast business improvements happening inside ABC.

By isolating ABC through a minority IPO transaction, these shareholders contended that the sum of the two companies' market valuations would undoubtedly be greater than the current market valuation of XYZ. Besides, the minority IPO transaction wouldn't need XYZ's management to relinquish control over ABC, as the transaction would just include the sale of a minority — or "non-controlling" — level of the company's shares.

Features

• It is frequently utilized by conglomerates who feel that they are being undervalued by investors.
• A minority IPO is a type of spinoff transaction in which a parent company sells a non-controlling share of at least one of its auxiliaries.
• Minority IPOs can give more granular financial reporting and improved liquidity for investors.