So at an age when most entrepreneurs intend to get friendlier with their irons, Nicklaus has committed to growing his business. In June, he sold a $145 million minority stake in Nicklaus Cos. to Howard Milstein’s New York Private Bank & Trust. "Our hope is that our company will continue to prosper, and we plan to be involved for many generations to come," says Nicklaus, who works alongside all four of his sons and his son-in-law.

Selling a minority stake to an outside investor while retaining control, as Nicklaus did, is certainly not a new option for business owners. Yet Tim Kelleher, managing director of La Jolla, Calif.–based PCG Capital Partners, which focuses on making minority investments in private companies, says that he’s surprised by the relatively poor awareness of this opportunity. "It’s common that [companies seeking capital] will say to us, ‘I’ve never heard of this before.’" PCG’s clients tell him that their financial advisors more commonly mention selling to a buyout fund, a high-yield bond offering, an IPO or debt financing. "A very common statement we hear from the CFO is, ‘I didn’t know this kind of capital was available.’"

Indeed, data from Thomson Financial shows that over the past decade, minority deals accounted for less than 5 percent of all M&A activity in dollars. Of course, whether an investor takes a noncontrolling stake in a target company is predicated not just on the company’s knowledge of such injections of capital, but also on the investor’s willingness to put up millions in exchange for a subservient voting position. Experts believe that minority investments may become more popular for a number of reasons. For privately held companies, the notion of going public is less attractive today because of regulations such as Sarbanes-Oxley, which have become cumbersome and costly. Moreover, IPO offerings now need to exceed perhaps $100 million for an owner to elicit anything other than yawns from most wealthy and institutional investors.

IPO offerings now need to exceed perhaps $100 million for an owner to elicit anything other than yawns from most wealthy and institutional investors.

Jeff Tognoni, CEO of Indianapolis-based software company Consona, sought additional capital to fund a growth-by-acquisition strategy, but found the public markets repellent. "It’s hell to be a public company today because of all the regulations. It’s just a thankless situation. It’s the reason private equity firms are taking companies private left and right," says Tognoni, who was willing to float 30 percent of his company to raise cash. "Whether you want partial liquidity or you want full liquidity, seeking private equity is a far better route today, we believe, than an IPO." In January 2006, Thoma Cressey Bravo invested $50 million in Consona. Along with its 30 percent stake, Thoma Cressey Bravo garnered a seat on the four-member board of directors.

Hitching the Wagon
Investors’ rising awareness of minority transactions is powered by increasing interest in financial deals. In 1997, 95 percent of the 1,015 minority transactions were strategic in nature, according to Thomson. However, last year, 74 percent of the 607 minority deals that Thomson tracked were strategic. In 10 years, the number of financial deals as a percentage of all transactions has grown fivefold.

Yes, most investors still insist on taking a controlling stake to safeguard their money, but PCG’s Kelleher explains that some investment firms like his have a greater comfort level with noncontrol opportunities. Target companies have proven that they can achieve healthy growth with the original founders at the helm rather than with investors-cum-managers from the outside. Minority-stake investors look for companies that have a strong management team with a positive entrepreneurial bent. "Typically, the deals I have seen where they are minority recaps, they’re backing the entrepreneur," notes Justin Marriott, managing director of Seare Marriott & Co., a boutique investment bank in Richmond, Va., that specializes in mergers and acquisitions. "Many times you are comfortable going in because you want to back this particular management team. I would take a good management team even over the business model," he says. "It’s almost like if that team leaves or doesn’t perform, that’s kind of your investment." Marriott adds that business owners who sense a weak link in their team are best advised to replace that executive before approaching the private equity market, or jettison him and tell investors that he will be replaced after the capital infusion.