When retaining a stake creates the best long term return
- Tony Vaughan
- 2 days ago
- 3 min read
For many business owners, a sale is still viewed as a single event. You build the business, sell 100 percent, take the cheque, and move on. That approach has worked for decades and, in the right circumstances, still does.
However, for a growing number of quality SME businesses, particularly those with strong management teams and long term growth potential, retaining a stake can deliver a materially better outcome over time.
At Mergers.co.uk, we specialise in structured transactions where founders de risk, release capital, and remain invested alongside a new partner. When done properly, this approach often creates the best long term return, financially and strategically.
The traditional full exit is not always optimal
A full sale provides certainty and simplicity. But it also caps upside. When you sell 100 percent of your business, you are crystallising value at today’s valuation multiple, based on today’s size, systems, and perceived risk. Any future growth, margin improvement, or multiple expansion belongs entirely to the buyer.
In many cases, the founder has already done the hardest part. The business works, customers are loyal, and the market opportunity is far from exhausted. Selling everything at that point can be leaving value on the table.
What retaining a stake really means
Retaining a stake does not mean clinging on emotionally or refusing to let go. It means structuring a deal where:
You sell a meaningful shareholding to release capital
A new equity partner brings funding, capability, or scale
You retain a minority stake, often between 20 and 49 percent
Value creation is shared over the next phase of growth
This is not a compromise. It is a deliberate strategy.
Why partial exits often outperform full sales
There are three core reasons why retaining equity can produce a superior long term return.
1. Second bite of the cherry
By retaining a stake, you participate in a future exit.
If the business doubles in size, professionalises its management, or expands into new markets, the valuation multiple often increases as well. Your retained shares benefit from both growth and re rating. It is not uncommon for the value of the retained stake to equal or exceed the value realised at the first sale.
2. Risk reduction without walking away
A partial sale allows you to take money off the table while staying involved.
You de risk personal finances, diversify wealth, and reduce dependency on the business, while still benefiting from future upside. For many founders, this is a far more sensible position than an all or nothing outcome.
3. Better aligned partnerships
In well structured transactions, the incoming partner wants the founder to stay invested.
Shared equity aligns incentives. Everyone benefits from long term value creation, not short term cost cutting or financial engineering. This often leads to better strategic decisions and healthier businesses.
When retaining a stake works best
Retaining equity is not suitable for every business or every owner. It works best when:
The business has strong growth potential beyond the current owner
There is a capable management team or one can be built
The owner is willing to stay involved for a defined period
The buyer is a strategic or long term financial partner
It is far less effective when the business is owner dependent, structurally fragile, or where the seller wants a clean and immediate break.
Control, governance, and clarity matter
One of the biggest risks in partial exits is poor deal design. Retaining a stake only works if:
Governance is clearly defined
Decision making authority is agreed upfront
Exit routes are documented from day one
Incentives are aligned and enforceable
This is where experience matters. These are not template transactions. Each deal needs to be structured around the commercial realities of the business and the people involved.
The role of strategic capital
The best partial exits are not about price alone. They are about what the new partner brings beyond money. This may include:
Acquisition capability
Operational expertise
Sector relationships
Institutional credibility
Strategic capital accelerates growth. Growth drives value. Retained equity magnifies the outcome.
Thinking beyond the headline price
Too many business owners focus exclusively on the initial valuation. The smarter question is not “What multiple can I achieve today?” but “What is the total value I can realise over time?” In many cases, retaining a stake answers that question far more effectively than a full sale ever could. Selling part of your business is not a halfway house. When structured correctly, it is a disciplined, forward thinking exit strategy.
At Mergers.co.uk, we work with founders who want more than a one off transaction. We help structure partnerships that deliver liquidity now and value later. If you are considering a sale but are not convinced a full exit is the right answer, a retained stake strategy may be worth exploring.
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