This post is Part III in a three-part series summarizing and exploring Transitions in the Family Business: A Conversation with Family Business Owners and Leaders, a recent event for family-owned-business leaders that Bradley’s Family Business Advocates team co-hosted with Warren Averett. The event consisted of three panel discussions: Transitioning to the Next Generation, Transitioning to Nonfamily Executive Management, and Transitioning to a New Owner. See Part I of this series on Transitioning to the Next Generation, and Part II on Transitioning to Nonfamily Executive Management.
This post highlights the third and final panel’s discussion on Transitioning to a New Owner. In this panel, our speakers discuss their families’ experiences in selling their businesses. Selling a family-owned business is at the same time a complex business decision and a complex emotional decision. Depending on how ownership and control of the business are held within the family, realizing the rewards of a multigenerational effort through a sale will likely require the approval of multiple family members. Any number of factors may play a role in a family’s decision to sell its business — a new generation may be unavailable to take over, the family may want to pursue a new or different venture, or an offer may be too good to refuse.
Whatever the motivating factor, selling a business, especially a family-owned business, is almost always a once-in-a-lifetime experience. What may have taken several generations to build can easily be squandered in a bungled sales process. For this reason, families should engage competent advisors as soon as possible. A typical transaction requires input from a transactional lawyer, investment banker and accountant, among others. This team should add value by working together to structure a deal that accomplishes the family’s goals, whether that is protecting the family’s legacy, maximizing sales proceeds, facilitating a tax-efficient transfer, or limiting the family’s post-closing liabilities. When the time comes, experienced advisors help families analyze competing offers, which can include comparing different kinds of buyers (e.g., private equity versus strategic buyers) or different types of considerations (e.g., cash versus shares of the buyer’s equity).
Sellers have a natural tendency to underestimate the time and resources that will be required to successfully close a transaction. Although the due diligence required for every transaction varies, with few exceptions, buyers require a thorough evaluation of the seller and the seller’s business prior to signing on the dotted line and wiring funds. Throughout this process, families are challenged to maintain their business’ value, while negotiating and executing a handoff to the new owner. Deal fatigue is a serious threat not only to the proposed transaction, but also to a family’s existing business operations. A terminated sales process may disrupt existing relationships with customers and suppliers, open the door for competitors, and frustrate future opportunities to sell the business. Families aware of these challenges at the outset are better able to prepare for them as they may arise.
For related discussions, see ESOPs: An Alternative Exit Strategy for Family-Owned Business, a post on using an ESOP transaction as alternative to the traditional sales process, and Should You Hire An Investment Banker To Sell Your Family-Owned Business?, a post on the benefits of engaging an investment banker.