Drake's OVO Sale: 3 Exit Lessons for Small Businesses

Key Takeaways

• A partial exit allows founders to pull cash out of their business while retaining enough equity to benefit from future growth.
• Succession planning and ownership transfers require filing a new Beneficial Ownership Information (BOI) report with FinCEN.
• Majority sales to larger conglomerates often trade immediate control for access to better supply chains and global distribution networks.
• Valuations for partial exits typically hinge on 'Adjusted EBITDA,' making clean books essential at least 24 months before a sale.

Drake just offloaded a majority stake in his OVO lifestyle brand to Authentic Brands Group (ABG). As reported by Billboard, the deal leaves the rapper with significant ownership while handing the operational reins to a company that manages massive names like Reebok and Brooks Brothers. It's a classic 'partial exit' that turns a brand into a liquid asset without the founder walking away entirely.

You mightn't be a multi-platinum artist, but the mechanics of this deal apply to any 10-person HVAC business or local retail chain. Most owners think selling a business is an all-or-nothing event. They wait until they're burnt out to sell 100% and retire. Drake's move shows a better path: sell the majority to someone with bigger pockets, take a massive check today, and keep a 20% to 40% slice to see if the new guys can double the company's value over the next five years.

What happens when you sell the wheel but keep a seat?

A partial exit solves the 'all my eggs in one basket' problem.

Say you run a landscaping business netting $400,000 a year. 5 million on paper, but you can't spend that money on a house or a new fleet until you sell. By selling 60% of the company to a larger regional player, you lock in a $900,000 payday now. You stay on to run operations, but you use the buyer's cheaper insurance rates and better software to grow the remaining 40% of your stake.

This shift in ownership isn't just a handshake deal. Under federal law, any change in who owns or controls 25% or more of your company must be reported to the federal government. You can find these specific reporting requirements at fincen.gov/boi. Failing to update this record after a stake sale can lead to civil penalties of up to $500 per day.

How do you price a majority stake without getting fleeced?

Buyers like ABG don't buy businesses based on 'potential' or 'vibes.' They buy cash flow. In the small business world, this is usually a multiple of your SDE (Seller's Discretionary Earnings). If you're looking to sell a majority stake, you need to prove your margins are sustainable without you working 80 hours a week. A buyer will discount the price if the business breaks the moment you take a vacation.

Before you even talk to a broker, you should review the SBA's guidance on business valuation to understand how different industries are priced. For a service business, a typical sale might be 2x to 4x your annual profit. If you keep 30% equity, you're betting that the buyer's resources will make that 30% worth more in three years than 100% is worth today.

Why would a founder choose to lose control?

Control is expensive. When you own 100%, you're responsible for 100% of the lawsuits, the payroll taxes, and the equipment failures. By selling the majority stake, you shift the 'heavy lifting' to the new majority owner. Drake gets to keep designing clothes and making music while ABG handles the logistics of shipping OVO hoodies to 50 countries.

For a solo business or a small team, this often looks like a 'recapitalization.' You bring in a partner who has the cash to buy new trucks or open a second location that you couldn't afford on your own. It turns your business from a job into a true investment portfolio.

1. Audit your books today. No one buys a majority stake in a company with messy spreadsheets. Spend $2,000 on a professional clean-up if you haven't done it this year.
2. Identify your 'strategic' buyers. Make a list of three larger competitors who would benefit from your customer list or your specific location.
3. Check your Operating Agreement. Most standard LLC documents have 'Right of First Refusal' or 'Drag-Along' clauses. Make sure your paperwork actually allows you to sell a piece of the pie without a legal nightmare.
4. File your BOI report. If you haven't registered your current ownership with FinCEN, do it before you start negotiations. It takes about 20 minutes.
5. Calculate your 'Walk Away' number. Know the exact dollar amount you need to receive in cash to feel comfortable losing majority control of the brand you built.

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📋 Disclaimer

This article is for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations change frequently, and the information presented may not reflect the most current legal developments. Always consult with a qualified professional (CPA, attorney, financial advisor) before making business decisions based on this content. MyBizNerd may receive compensation through affiliate links, but this never influences our recommendations.

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