The Second Bite: Why 20% Can Be Worth More Than 80% in Manufacturing PE Deals
Private equity isn’t just about the payday—it’s about what comes next. Retaining a minority stake can unlock massive upside, especially after operational and market improvements. Founders who stay invested often scale faster, build stronger businesses, and create lasting generational wealth. This approach rewards patience, strategic thinking, and the courage to build twice.
You don’t need to own everything to win big. In fact, for many manufacturing business owners, letting go of full ownership opens the door to something far more powerful. If you’ve built a shop, system, or product customers love—and PE comes knocking—you’re probably thinking: How do I protect what I’ve built and capitalize on the opportunity?
Here’s where keeping 20% can work harder for you than the original 80%. Not just mathematically, but strategically. It’s what many insiders call “the second bite”—and done well, it’s where legacy and scale collide.
First off, what are manufacturing PE deals?
Manufacturing private equity (PE) deals involve an investor—usually a PE firm—buying a majority stake in a manufacturing business to help it scale more efficiently and profitably. The firm injects capital, operational expertise, and professional systems to improve productivity, margins, and market reach.
For example, a precision parts maker that’s hit a growth ceiling might sell 80% of the business to PE, gaining cash and support while retaining 20% ownership. Over the next few years, with better analytics, upgraded equipment, and streamlined processes, the business value triples. When it’s sold again, that retained 20% stake could be worth more than the founder’s initial payday. PE deals like this give manufacturing owners the chance to convert hard-built equity into liquidity, while staying involved and building long-term wealth.
The Power of the Second Bite: Why Less Ownership Can Mean More Wealth
Let’s say your manufacturing business sells 80% to a PE firm for $20 million. You hold onto 20% because you believe in the future. That retained piece? It’s not just symbolic—it could be worth another $10–15 million if the business doubles or triples in value post-deal. And often, it does. Because private equity doesn’t just bring money. It brings discipline, infrastructure, and a growth blueprint.
Here’s where many owners underestimate the upside. If the PE firm introduces lean operational systems, revamps your quoting process, and gives you access to better forecasting tools, your margins expand. Your customer lifetime value improves because you’re no longer bleeding time on inefficient jobs. The business becomes tighter, faster, and more scalable. That once-private shop now attracts new buyers, bigger accounts, and higher multiples. Your remaining 20% rides the wave without carrying all the weight.
Consider a precision machine shop founder who sold the majority of his company but stayed involved in quoting and tooling innovation. The PE firm added sales leadership, professionalized HR, and upgraded analytics. Within three years, EBITDA tripled. When the second sale happened, his minority stake earned him nearly as much as the original sale. He didn’t just build a business—he built a flywheel.
And here’s the kicker: the first sale gave him optionality. He paid off debt, secured his family’s future, and chose to keep building—not because he had to, but because he wanted to. That’s the kind of wealth that feels different. Not just financial freedom, but strategic freedom. It’s no longer about survival—it’s about legacy.
Want to move on from everyday firefighting but still make high-impact decisions? Want to stay close to your product but stop doing midnight payroll? This model lets you do both. And it’s why experienced founders in manufacturing are getting savvier about how they structure their exits—not just to cash out, but to keep building without burning out.
Psychology of Retaining Equity: From Founder to Builder-Partner
Many manufacturing founders have built their businesses by making every decision—from vendor negotiations to final product inspection. So it’s natural to feel uneasy about giving up control. But retaining a minority stake doesn’t mean stepping away—it means repositioning yourself. You transition from being the all-seeing operator to becoming a high-leverage partner. With fewer daily fires to put out, you gain the mental clarity to lead bigger initiatives, explore new product lines, or pursue passion projects within the business.
A founder with a background in specialty tooling once said the most liberating moment came not from selling the company—but from stepping out of weekly vendor meetings. Instead of dealing with supply chain headaches, he focused on developing a modular tooling system that later became the company’s competitive edge. That innovation wouldn’t have happened without operational breathing room.
Psychologically, the shift requires trust. Trust in your team, in your processes, and in the PE partner you’ve chosen. Some founders struggle with this transition. But if the partner is the right fit, you won’t feel sidelined—you’ll feel supported. You’ll get access to experts in areas you never had bandwidth for: logistics, finance, marketing, HR. Suddenly, you’re not solving problems alone. You’re leading from strength.
Keeping a piece of the business lets you stay emotionally and financially invested—but with smarter leverage. You’re still mission-driven, but you’ve multiplied your impact. And that’s a powerful mindset shift: from defending your turf to building a legacy.
The Scaling Engine: How PE Transforms Capabilities and Value
Private equity doesn’t just inject cash—it installs engines. These include structured operating systems, CRM overhauls, supply chain optimization, and standardized KPIs. For manufacturing businesses, this often means converting tribal knowledge into scalable processes. What used to live in a single foreman’s head now lives in a digital dashboard visible to everyone. That alone is a productivity breakthrough.
Imagine a metal fabrication business where quoting was still done manually and throughput reports were anecdotal. After PE involvement, they introduced a digital scheduling engine, reworked their BOM logic, and reduced lead times by 30%. Buyers didn’t just get faster deliveries—they got consistency. That reliability became a selling point that justified premium pricing. The retained 20% stake gained value not from investor interest—but from improved real-world performance.
PE firms often know how to turn hidden efficiencies into profit. They’ll help you reexamine floor layouts, fine-tune labor utilization, or renegotiate raw material contracts through volume leverage. These changes aren’t cosmetic—they’re structural. And when your business earns higher margins across more predictable revenue streams, the market assigns it a higher valuation.
What matters is that your retained equity starts compounding—not because you’re doing more, but because the business is doing better. And every operational upgrade you help guide strengthens your ownership position—even if it’s a minority share.
Staying Mission-Driven While Building Wealth
One common fear among manufacturing owners is that PE involvement means sacrificing culture. But that doesn’t have to be the case. Owners who negotiate smartly can maintain influence over hiring practices, product development decisions, and vendor relationships. You don’t have to sell your soul to scale your shop.
A packaging manufacturer founder kept a 20% stake and ensured the PE firm couldn’t override sustainability goals. She knew customers valued low-waste processes, and fought to retain control of supply chain selection. Not only did that preserve brand integrity—it attracted enterprise buyers who shared her values.
Being mission-driven means creating agreements that protect the company’s identity. You can request board seats, define veto rights, or establish non-negotiables in your deal terms. Don’t assume you’ll be steamrolled—most experienced PE firms want the founder’s insights. What they often lack is deep tribal knowledge of the niche: your market, your buyer psychology, your process quirks. That’s your value—and your leverage.
The irony is that many founders scale their impact more after selling majority control. Why? Because they spend less time on admin—and more time championing innovation, values, and reputation. Mission doesn’t get diluted—it gets distributed. And that’s how minority owners become movement leaders.
When the Second Bite Backfires—and How to Avoid It
Second bites can sour—when rushed, mismatched, or poorly structured. It usually starts with partnering with the wrong PE firm. If their focus is on short-term profit flipping rather than long-term value creation, your equity may never mature meaningfully. Fast exits aren’t always smart ones.
Founders also face the risk of being operationally boxed out. If governance isn’t clearly defined, your input could be marginalized. Picture a scenario where quality slips due to outsourced labor decisions you weren’t consulted on. You see what’s happening—but you’ve lost your vote. That’s preventable, with the right deal structure and advisory support.
Another risk: poor legal protection. Some founders assume equity means influence—but if you don’t have board representation, veto rights, or access to financials, you’re left in the dark. Be sure your minority stake comes with transparency, not just certificates.
The good news? These pitfalls are avoidable. Interview PE firms deeply. Don’t just ask about past deals—ask how they work with founders post-acquisition. Choose advisors who understand shop-floor reality—not just abstract finance. And design earnouts, incentive triggers, and governance models that match your growth goals. That way, the second bite isn’t just sweet—it’s sustainable.
3 Clear, Actionable Takeaways
- Structure For Control—Even Without Majority Ownership Retaining 20% doesn’t mean giving up influence. Negotiate governance, advisory roles, and cultural safeguards.
- Let Capital Be a Catalyst, Not a Crutch Use PE tools to scale your strengths. Maintain product integrity while adding process discipline to unlock value.
- Play the Long Game, Not Just the Sale Real wealth comes from the second bite. Build the next chapter with intentionality, strategy, and courage.
Top 5 FAQs About Minority Ownership in Manufacturing PE Deals
1. Can I stay involved in day-to-day operations after selling a majority stake? Yes—if structured properly. Many PE firms value founder expertise. Negotiate your continued role clearly.
2. What if I don’t trust outside investors with my company’s culture? You can define cultural guardrails in the deal. Retain influence over hiring, vendor standards, and product direction.
3. How do I know if a PE firm is the right fit? Ask about their past investments in manufacturing, how long they typically hold businesses, and what role founders play post-investment.
4. Can my 20% stake grow even if I’m not running the business anymore? Absolutely. If the PE firm scales operations, margins, and revenues, your stake can become significantly more valuable at exit.
5. What kind of advisors should I bring into the deal? Choose professionals who understand manufacturing, deal structuring, and long-term governance—often more useful than generic financial advisors.
Summary
The second bite isn’t just a clever financial strategy—it’s a mindset shift. By choosing influence over control, manufacturing founders unlock scalability, freedom, and generational value. You’ve built something special—and if you structure your exit wisely, you’ll build it twice. That 20%? It might be the most profitable part of your journey.