Taking a minority stake in a joint venture (JV) can make good business sense. What doesn’t make sense is ceding more control than you have to. With the post-pandemic surge in partnerships, including those with unequal ownership, executives negotiating the deals should understand that they may hold more cards than they realize.
Nearly half of the world’s largest JVs have a minority partner — that is, an owner with an equity interest below 50%. Companies may take minority stakes simply due to comparative asymmetries in their contributions of cash and assets to the venture or because they’re selling a majority stake in a previously wholly owned business as the first step in a staged exit. They may want to test the waters before fully committing to a new geography or business, or local regulations may prevent them from having a controlling stake. Regardless of the reason, minority partners often seem to hold an enviable position: They invest less money, have lower reputational risk, and can lean on a majority partner to do much of the heavy lifting.
Unfortunately, minority partners in a joint venture can struggle to be heard, with their concerns about risks and opportunities going unanswered by venture partners and with no ability to force resolution of their issues. Perhaps not surprisingly, joint ventures with minority partners have lower success rates than 50-50 ventures, thanks in part to minority partners lacking the clout to get their voices heard. JVs with minority partners also frequently end in a buyout of the minority partner.
However, our analysis of 55 JV agreements with a minority partner, combined with our experience over multiple decades serving more than 300 such ventures, shows that minority positions need not be debilitating, and minority partners need not be silent subjects of actions taken by the majority.