June 21, 2018 | Cress Diglio
Are Family Businesses Ever Actually Sold?
The short answer is yes, but they typically incur a cost that goes beyond a price-tag.
With this in mind, family businesses will only typically be sold when there are genuinely potent reasons for the transaction; health problems, strong discrepancies between the family members due to management, old age, urgent need for capital injection, clear technological obsolescence, a diminishing profitability or a strong process of concentration in the sector. As such, many family business owners make the mistake of delaying a necessary decision: an acquisition, a recapitalisation, a merger or even a sale when there is no clear succession in the family and the owner as the manager enters the age of retirement.
The emotional difficulty of transitioning to new investors when selling your family business often causes family businesses to borrow too much, causing liquidity problems as soon as a business cycle change occurs. This happened to thousands of family businesses during the last financial crisis, which in turn saw the end to so many family enterprises, robbing the kin of their precious family assets.
The Time to Sell Your Family Business is NOW
Currently we are in a historic moment with many significant changes throughout Asia and Australia as well as the USA, Canada, in which we are going to experience the longest period of intergenerational transfer of private companies in history: The “Baby Boomers” must retire. In most cases, their children or “Generation X” (those born between 1965 and 1980), have had more sophisticated education and have opted to work in large companies. Behind them come the “Millennials”, a generation that claims to be the least enterprising in recent history.
This lack of desire to be entrepreneurs by the next generations will enhance a phenomenon of concentration, making our business fabric more resistant when the next crisis comes; and rest assured, it will come.
Many entrepreneur “Baby boomers” have lived to work, have hardly developed hobbies and are faced with the vertigo of not knowing what they will do with their time when they retire. Therefore, they resist selling the company, complicating its future viability. Thus, we find that 70%+ of family businesses do not pass on to the next generation.
Succession Planning is Crucial
The high mortality of companies is due, among other reasons, to the lack of planning for a transition towards a competent successor when selling your family business, the failure or exhaustion of a business or a sector, family difficulties, fights between partners, a lack of capital or a lack of financing.
Many of these closures could have been avoided if the entrepreneur knew how to choose the right time to part with their company.
In recent years, competitive pressures have accelerated the need to be quick to identify the opportune time to part with the company. Every company has an optimal time to be sold. It is vital to strive to know and be aware of it and then not regret it.
Business families must be alert to perceive the warning signs and, in case of need, know how to put the icing on a long process of creating business value by way of culminating it through a magnificent sales operation. The Mergers and Acquisition process consists of a myriad of long, complex, and in many cases arduous steps that must be approached with patience. Please do not hesitate to contact us to find out the market value of your business and whether the ‘time is right’ for you to consider what’s next for the family business you built!
Calder Associates of Australia
Perth (Australia) Office:
Level 24-25, 108 St Georges Terrace, PERTH, WA 6000 | +61 (0) 8 6397 1100