These linkages were formed using a variety of approaches, but in examining the advantages and goals of the transaction for both the buyer and seller, a number of common themes emerge. Selling as the ultimate hedge. In a number of the transactions which have occurred, the manager sells up to 50 percent of the business. This allows the manager to create liquidity for a portion of his investment in his own business, while retaining control and a significant continuing economic interest in the business. In so doing, the manager has given up some of the upside in exchange for downside protection.
Managers recognize the relationships they have with their investors are fragile.
A relatively short period of sub-par performance can result in a flight of capital and significant reduction in the value of the business. Selling a portion of the business when performance is strong helps mitigate this risk. Access the marketing clout of your partner. Many managers either do not have the time to do any meaningful marketing, or may find they hit a brick wall in identifying new prospects. Becoming associated with a larger institutional partner provides credibility as well as access to a partner's client base.