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D. Franklin's primary areas of practice include corporate, mergers and acquisitions, finance transaction and federal and state securities matters. He represents a variety of clients ranging from established companies with global operations to early stage businesses. View articles by D.

Transitions in Family-Owned BusinessesAs we enter what is expected to be the peak decade of baby boomer retirement, the recent 2018 Insights into Family-Owned Business published by the Birmingham Business Journal focused on transitions happening, and expected to happen, in family-owned businesses.  The most significant expectation appears to be that many family-owned firms will be sold during this wave of baby boomer retirement.  This is not an unreasonable forecast based on the number of family-owned businesses in the U.S. and the troubling reality that many owners have not planned adequately for the succession or transition of their business.  Certainly, many family-owned businesses will be sold as part of a well-thought-out plan.  I expect more will be sold as a result of inadequate planning.

I had the opportunity to participate in the Table of Experts for the 2018 Insights issue. We focused much of our discussion on the importance of planning for transition in a family-owned business and challenges faced by families seeking to continue ownership through generations.  If you want the “CliffsNotes” version of the 2018 Insights, I would summarize the key points as follows:  Successful transition, whether that means succession to the next generation, moving to professional management under family ownership or a sale of the business for the maximum return, requires total commitment, continuous planning, unwavering focus and excellent communication.  Easy enough, right?  We also recommend outside help from knowledgeable, experienced, trusted advisors (which should come as no surprise).

I hope you find the 2018 Insights into Family-Owned Business helpful.   Please contact any of the attorneys on our team if you need additional guidance on preparing for the transition of your business.

Emergency Succession: Lessons from Nick Saban and Dabo SweeneyI was recently discussing emergency succession planning with my friend John Howe, CEO of American Pipe and Supply. Okay, actually we were talking about football over a couple of beers. John is a Clemson grad and a big fan of the Tigers. I am a third generation Crimson Tide fanatic. So, John and I have had a lot to talk about for the last couple of years. But, as is often the case (with me), our conversation turned into a discussion of (what else) emergency leadership transition.

A few weeks earlier John and I had been together with a group of CEOs that we meet with each month to discuss and share business (and personal) experiences, as well as lessons learned. At that meeting, we discussed the importance of having an emergency succession plan. Basically, that is a plan for what to do when there is an unanticipated leadership change. Any organization with a leader, or leaders, should have an emergency succession plan. It does not have to be a beautifully written legal document (though we’re always standing by if that is what you want). It simply needs to be a well-thought-out plan for what the remaining leadership of the organization should do to ensure that the organization does not founder if it unexpectedly loses a key leader – most often the CEO.

So, how do Coach Saban and Coach Swinney fit into this conversation? John and I both noted that these coaches always seem to have another player ready to go when a key player is lost to injury, graduation or the NFL. It seems to be a very effective “next man up” system. We talked about what it takes to have that same system for success in a business.

I mentioned to John that I recently heard Coach Saban on his weekly radio show say that he recruits players who buy into the program (i.e., fit the culture), are talented and are coachable. He always has a pipeline of talent that can take over when needed. I believe Coach Swinney has a very similar approach. John noted that, like Coach Swinney, he hires people who have the “right chemistry” and then trains the recruit for the job. John wants people who he can visualize going at least two positions above the job they are hired to perform. I think that is probably what our coaches do, too. That is, they have to be able to visualize a green 18-year-old being able to perform at a much higher level as an upperclassman and, in some cases, to be the leader of the team.

But John is also quick to add that “you have to do the training.” You cannot simply hire (or sign) very talented people who fit the culture and not provide them coaching and resources. Like Coach Saban and Coach Swinney, you recruit five-star talent and coach that talent to win championships. In John’s organization, each employee has an Individual Development Plan that is agreed to by the employee and the supervisor. The employee is mentored, and progress is tracked. Like at Alabama and Clemson, accountability to your teammates is key. This effort should produce the leaders of the future.

John says at his company there is no “second string” – everyone is a contributor. I noted that Coach Saban takes the same approach. I have seen him annihilate a reporter for asking him about the team’s depth chart!

To summarize, for a company to have the best chance for continued success when an unplanned leadership change occurs there must be talented, well-prepared people who are committed to the team and ready to take over the leadership role.

One additional element I recommend is for leadership to have a written emergency succession plan. The plan should outline the steps for succession, the person who is to be the next leader and the immediate job description. I expect Coach Saban and Coach Swinney have a “plan B” as part of their game plan – what to do on the spot if a crucial player goes down in a game.

So, the key elements as exemplified by our coaches (and John Howe) are:

  • Plan/think about/know the need – Who is absolutely key that may need to be replaced quickly?
  • Recruit the right talent – Hire people who can step up when needed. There is no second string!
  • Do the training – Someone should be prepared to step in at any time (e.g., QBs at Bama and Clemson).
  • Have a written plan – Be prepared with a plan in case of emergency when folks aren’t thinking as clearly as usual.

This blog post is co-authored by John Howe, CEO of American Pipe and Supply.

Transitions in the Family Business: Hope Is Not a StrategyIf last week’s post summarizing the third panel from the Transitions in the Family Business: A Conversation with Family Business Owners and Leaders event piqued your interest in selling a family-owned business, you may have more questions about the sale process. As part of the Transitioning to a New Owner panel, Frank A. McGrew IV, managing partner of McNally Capital, shared his top 10 questions that family business owners and leaders should ask before pursuing a sale of their business.

  1. Is your business ready to sell? Any buyer’s due diligence process requires a thorough evaluation of the seller and the seller’s business. Is your business ready for this examination?
  2. Are you personally and mentally ready to sell your business? It is easy to be consumed by the immediacy of the sale process. Before exploring a sale, ask yourself: What would I do next and for how long? How much money do I truly need to live on if I sell my business?
  3. When is the right time to sell? How will you know when the time is right? What are the trigger points to watch for, and how do you measure those?
  4. How much is your business worth to you? How much will another buyer want to pay? What is the likely range of these values?
  5. Who is the best and/or the right buyer? Are there certain buyers you do not want to approach or sell the business to? This could include competitors.
  6. How can you increase the odds of success in your favor during a sale and transition process?
  7. How can you maximize the purchase price and net proceeds from the sale?
  8. How can you quantify and better understand the principal risks for your business and a transaction process before you begin?
  9. What issues must be addressed before beginning a sale process?  For example, these could include legal, environmental or customer/supplier issues.
  10. Who and what are the most appropriate outside experts and resources you need to utilize for a successful outcome? Frequent players include a transactional attorney, a banker, a wealth management advisor, and a trustee. Perhaps most importantly, who will “quarterback” this process as your client consigliere?

After reflecting on and answering the questions above, potential sellers will be better equipped to succeed in a sale transaction.

This blog post was co-authored by Frank A. McGrew IV of McNally Capital. Frank is a Managing Partner and leads the Merchant Banking efforts at McNally.