WHAT IS 'Minority IPO'

A minority IPO is an initial public offering in which a parent company spins off one of its subsidiaries or divisions, but retains a majority stake in the company after issuance. This means that after the public offering, the parent company will still have a controlling stake of the new public company. Shareholders who purchase shares during the IPO will only be minority owners of the company, hence the name minority IPO. A minority IPO is also called a partial IPO.

BREAKING DOWN 'Minority IPO'

A minority IPO allows a parent company to guide a subsidiary through the initial public offering process while regaining enough to control to protect a vulnerable company from takeover or bad management decisions by retaining majority control of the subsidiary. The parent company may retain this majority stake forever or may slowly dissolve its ownership over time, depending on the parent company’s goals for the subsidiary.

Creating this type of IPO allows the parent company to raise funds, accessing the value of the subsidiary, to fund its own operation or return value to shareholders. It is also a way for the parent company to grow a valuable business line or maximize brand equity while preventing the parent company from becoming a conglomerate and losing efficiencies.

Benefits of a Minority IPO

A minority, or partial, IPO is a way for a company to raise significant amounts of capital on a brand or company it owns without giving up ownership or control of that company. In a regular IPO, enough shares are offered up for sale to the public that any one entity gaining control of those shares would have decision-making rights over the company by being the majority owner. Since the parent company retains majority rights in a minority IPO issue, even if another entity gained control over all the shares issued publicly during the IPO, it would never have majority control and could not make decisions for the company.

This structure benefits both the parent company, which is still connected to the subsidiary company and has born significant risk to scaffold the subsidiary through the IPO process, and the minority IPO company, which needs time to develop and mature as a publicly held company.

Depending on how the parent company acquired the subsidiary, the minority IPO may also be a way to prevent previous ownership from regaining control of the subsidiary. If the parent company acquired the subsidiary by buying it or merging with it, the previous owner may have a vested interest in regaining control, and a minority IPO structure will prevent that from happening.

RELATED TERMS
  1. Subsidiary

    A subsidiary is an independent company that is more than 50% ...
  2. Taxable Spinoff

    A taxable spinoff is a divestiture of a subsidiary or division ...
  3. Public Company

    A public company issues securities through an initial public ...
  4. Letter Of Moral Intent

    A letter of moral intent is written to a bank from a parent company ...
  5. Non-Controlling Interest

    Non-controlling interest is an ownership position in which a ...
  6. Public Offering

    A public offering is an organization’s sale of equity shares ...
Related Articles
  1. Investing

    Evaluating Retained Earnings: What Gets Kept Counts

    A company's retained earnings matter. Be investment-savvy and learn how to analyze this often overlooked information.
  2. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  3. Investing

    Comparing Spin-offs, Split-Offs and Carve-Outs

    Spin-offs, split-offs and carve-outs are three methods a company can use to divest certain assets, a division or a subsidiary. Here's how they differ.
  4. Retirement

    How Children Can Help Parents With Retirement

    Sometimes the elderly lose their cognitive skills, that's when it may be time for their children to step in and assist with retirement planning.
  5. Retirement

    Are You Prepared for Your Parents’ Retirement?

    Dealing with your parents' retirement will be easier if you have a plan ahead of time.
  6. Financial Advisor

    7 Ways Baby Boomers Can Financially Assist Parents

    To help relieve some of the pressure that comes with caregiving, here are seven ways Boomers can financially assist elderly parents.
  7. Financial Advisor

    Top Tips for Family Wealth Transfers

    Essential tips for tackling family wealth transfers.
  8. Financial Advisor

    Transition Planning: Include the Whole Family

    Death is one of the most uncomfortable - and necessary discussions that a family can have. As an advisor, it can be up to you to lead the conversation.
RELATED FAQS
  1. How do spinoffs impact investors in the both the parent and subsidiary companies?

    Learn about how spinoffs affect investors in both the parent company and the subsidiary and what strategies investors use ... Read Answer >>
  2. What is the difference between a subsidiary and a wholly owned subsidiary?

    Understand the primary differences between a subsidiary company and a wholly owned subsidiary, and their relationship to ... Read Answer >>
  3. How is taxation treated for both the parent and subsidiary company during a spinoff?

    Learn how the potential tax implications of a spinoff can affect both parent and subsidiary companies and how taxes may be ... Read Answer >>
  4. What are the tax implications for both the company and investors in a divestiture ...

    Learn the tax implications for a company and its investors in divestiture events, such as spinoffs, equity carve-outs, and ... Read Answer >>
Hot Definitions
  1. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  2. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  3. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  4. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  5. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  6. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
Trading Center