LEARN WHEN TO SELL A FAMILY BUSINESS -- Selling a family business successfully involves much more than how hot the industry or the financial markets may be.

In the article below, “What to Consider When Selling the Family Business,” François M. de Visscher describes four cycles -- business, liquidity, ownership and fiduciary -- that should align when evaluating, as a business owner or owner/trustee, the potential of a financial transition for a family business. According to Mr. de Visscher, there is never a perfect time to effectuate a financial transition, but sellers can greatly improve their chances.

François M. de Visscher, Founder and President of de Visscher & Co., LLC (Greenwich, CT), is a pioneer in the field of financial advice to family companies. A native of Belgium, Mr. de Visscher has been an active advisor to business-owning families for over twenty years in the US, Canada, Europe, the Middle East and Latin America. Mr. de Visscher is a family director and fourth generation shareholder of his own family's global enterprise, N.V. Bekaert S.A., headquartered in Belgium.

Mr. de Visscher is a past President of the Family Firm Institute, current Chairman of the European Family Office Conference and a contributor to many publications, including The Wall Street Journal, LA Times, NY Times and many others. Mr. de Visscher also is a Certified Public Accountant and a member of the American Institution of CPA's.

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Active FOCUS Deals

With over 25 years of experience across many verticals, FOCUS currently has over 60 active transaction engagements in its four offices in Atlanta, Chicago, San Francisco, and Washington, DC in the following specific business sectors:

• Aerospace
• Automotive
• Building Products
• Business Process Outsourcing
• Business Services
• Call Center
• Construction
• Distribution
• Education and e-Learning
• Energy, Oil and Gas
• Food and Beverage
• Government Contracting
• Healthcare
• Information Services and Databases
• Information Technology: Hardware
• Information Technology: Services
• Information Technology: Software
• International
• Manufacturing
• Media and Publishing
• Medical Devices and Equipment
• Medical Diagnostics
• Metals and Mining
• Payment Systems
• Professional Services
• Retail
• RFID Technology
• Satellite Communications
• Security Systems and Services
• Sports
• Supply Chain Management
• Systems Integration
• Technology
• Telecomm and Wireless
• Transportation

We have executed dozens of transactions in a range of market segments, but the same fundamentals apply across all of them. Our on-going transaction process provides us with up-to-the-minute market knowledge in these sectors. Are any of them of corporate development interest to you? Give us a call or drop us a note.

Inquiries should be addressed via e-mail to info@focusbankers.com, by telephone to 202-470-1973 or by fax to 202-785-9413.

EFACEC Has Acquired Advanced Control Systems

FOCUS acted as financial advisor to and assisted with the negotiations as the representative of Advanced Control Systems (ACS), a provider of smart grid automation and software solutions for electric utilities. Since its inception, ACS has delivered more than 500 systems to more than 250 utilities worldwide.

What to Consider When Selling the Family Business

By François M. de Visscher, Founder and President, de Visscher & Co., LLC

Imagine a private equity firm calls and makes what seems like a generous offer to fund your next stage of growth. Interest rates are still reasonably low and your industry is booming, so you can command a high share price for selling all or part of the company to the investor. The same week, your nearest competitor calls you via his financial advisor, inquiring about a potential merger of the two companies. A larger size business would be able to compete more effectively in a global economic environment. It seems like a no-brainer: go for it!

Or should you? It depends. From an industry and market standpoint, this may be a great time to sell or invite an outside partner to raise money for an acquisition or, perhaps, for expanding overseas. However, selling the family business involves more than how hot your industry or the financial markets may be.

The family business is part of a complicated fabric of business ambition, family values and relationships and long-term wealth-building goals. The patient capital that the family has invested over one or more generations goes beyond dollars and cents; it also involves intangible attributes relating to family heritage and fiduciaries' duties, which business owners are expected to pass on to the next generation. Selling the family business or inviting an outside partner for a large expansion project may jeopardize the ability to pass on the "family effect" to future generations.

Successful Transaction

Any strategic financial transaction for a family company should fit into four different cycles: the business cycle, the liquidity cycle, the ownership cycle and the fiduciary cycle. While these four cycles may not always move in tandem, the success of any strategic financial transition for a family business may depend on how accurately one can time the transaction within the four cycles. Let's look at each cycle.

1. The Business Cycle

The business cycle weighs the degree to which your company's sector has potential for future global growth. To attract outside capital or a merger partner, you have to demonstrate growth in value and potential global business development. Is your business well positioned to take advantage of growth opportunities in the global markets?
For instance, the natural resources industry currently enjoys global favor because of scarcity and continued demand for energy and resources, while the traditional travel business with its network of agencies and call centers has been challenged by electronic and virtual agencies on the Internet.

To determine whether your company may be attractive to an outside investor or partner, start by identifying the global macro-economic trends (such as global population growth, rising healthcare costs or scarcity of natural resources) that affect your business growth, as well as global threats to your business (such as manufacturing cycles).

Second, consider rise of global competitors, development of new markets and customers in your industry, or even the speed of innovation. What if you conclude that your business survival is in danger in a global economic marketplace? Turn to your company's core competencies, which every business has, and which competitors cannot easily replicate, such as: certain customer relationships, unique manufacturing processes or proprietary sources of supplies.

Those core competencies are marketable to an outsider and may be combined with another business, developed in new markets or just bought for value. So even if your business is not quite positioned for global growth, future development of your core competencies may be very attractive to an investor or partner.

2. The Liquidity Cycle

The liquidity cycle gauges the amount of available liquidity and the current appetite of investors to invest in companies, especially those of your size, line of business and structure. A successful transition requires a highly liquid market and access to financial resources — either internal cash flow or outside funds from investors or lenders.

Judging solely by the liquidity cycle, this may be a very opportune time to sell your business or attract an investor or partner. Liquidity is abundant. Private equity firms and hedge funds are flush with investable cash. Banks are eager to lend and have been relaxing their lending standards.

Many corporations have accumulated vast amounts of internal cash, as evidenced by the extremely liquid balance sheets of Fortune 1000 companies. All this cash has led to many strategic deals between middle-market family firms and larger companies looking to put their capital to productive use.

Based on the amount of private equity being raised today, the markets should be liquid for the next three to seven years. When liquidity tightens, as it did during the early 1990's, corporate development activity tends to focus on mergers and business combinations as opposed to cash buyouts or investments. The timing of the liquidity cycle will dictate the type of deal that would have the greatest chances for success.

3. The Ownership Cycle

The ownership cycle considers whether or not this is the right time for the family to sell or to grow with a partner, in terms of what impact the potential transaction would have on the family. Even if the market and industry cycles are well positioned, the family itself may not be ready.

• Are we approaching or just completed an ownership or management succession?
• What is the status of family ownership and family management?
• How spread out is ownership?
• Has the family already made the transition between business management and wealth management?

In the founder generation, the owner/founder must define the role he or she will play after the transition, which could be leadership of a foundation or other philanthropic initiative that could carry the values and legacy of the founder. That role needs to be defined and prepared prior to the transaction.

Without preparation by and for the founder, any attempted deal may likely abort. On the other hand, potential successors may not yet have been identified or prepared. Having outside investors or bankers involved during that future transition would disrupt the succession process.

In the partnership generation, usually the second or third generation, control is shared among descendants of the founders. Some members are active in management, others are not. Active and inactive shareholders must share the decision to sell or to attract outside investors.

Their ability to reach consensus depends upon the timing in the succession process. For instance, second generation members who have recently stepped into management will not have had time to establish their own imprint or develop their own strategy, and therefore may not be prepared to deal with assertive outside investors or lenders.

During the coalition generation (typically third generation or beyond), ownership is spread among many cousins/descendants of the founder. In order for them to reach consensus without rupturing the family, the timing of the financial transition has to coincide with the evolution of the family governance.

This family governance structure, whether a family council, a family office or even a family holding company, must have the tools to handle decisions about the reinvestment or distribution of proceeds of a financial transaction and the perpetuation of the family values and the family heritage.

One third generation family business that had been approached by one of its competitors for a possible merger turned the suitor down. The family correctly realized the offer indicated the start of a trend in the market for greater consolidation. So instead of selling, the family business' family council rigorously interviewed shareholders about their liquidity needs, attachment to the business, degree of family effect and their desire to pool their assets.

They also formed a liquidity committee and an investment committee that helped the family evaluate various financial options to realizing shareholder value. As they saw the right timing in the business cycle a few months later, they were able to handle a strategic transition with serenity and maturity.

No matter what generation, families need a solid governance system to help them make wise decisions.

4. The Fiduciary Cycle

The fiduciary cycle focuses on the perspective of trustees and owners with fiduciary duties vis a vis the ultimate beneficiaries/shareholders of the family company. Those owners/trustees have the duty to maximize the value in a trust — not just the business — and weigh how to best invest capital in the trust, creating long-term value as well as liquidity for the beneficiaries by evaluating market opportunities to reinvest the proceeds in order to achieve both return and capital preservation inside the trust.

The fiduciary introduces wealth management into the equation. Even if a potential acquisition seems attractive from the business cycle, liquidity cycle and ownership cycle, trustees focus more on the stage of life of the beneficiaries, and their short- and long-term needs for cash.

The owner/trustee would also focus on finding attractive reinvestment opportunities for the after-tax proceeds of the liquidity created for shareholders. In one recent case, the owners/trustees voted against a transaction approved by all the shareholders, because they could not find a reinvestment opportunity for the after-tax proceeds that was attractive enough to provide the desired return for the beneficiaries.

All Four Cycles Should Align for a Successful Transition

Ideally, all four cycles should align when you're evaluating, as a business owner or owner/trustee, the potential of a financial transition for the family business. If you're not in a good place with any of these cycles, consider what you might need to get there.

There is never a perfect time to effectuate a financial transition for your business. However, by knowing where you are in the four cycles and knowing what to do to improve the timing on the cycles, you may greatly improve your chances for a successful transition.

© 2007 de Visscher & Co., LLC.

Fred Rock Joins FOCUS as Managing Director in Pittsburgh

Fred Rock has joined FOCUS as a Managing Director in Pittsburgh, PA. Mr. Rock has more than three decades of M&A and business advisory experience with a concentration in the manufacturing, energy, franchising and distribution industries.

“We are delighted with Fred’s decision to join our firm as he brings years of experience in many different industries. In addition, as Managing Director in Pittsburgh, PA, Fred expands our geographic reach, a continuing goal of FOCUS,” said Douglas Rodgers, Chief Executive Officer of FOCUS.

Prior to joining FOCUS, Mr. Rock was a Managing Director of Source Growth Capital, LLC, an affiliate of Source Companies, LLC (Source) which also is a member of the Business Growth Alliance, LLC (BGA). Mr. Rock’s transition from Source to FOCUS is a part of the planned expansion of each company as part of BGA’s ongoing national expansion and professional team realignments.

About Fred Rock

Prior to affiliating with Source, Mr. Rock was a Shareholder with Alpern Rosenthal in Pittsburgh, the largest independent accounting firm in Western Pennsylvania. Prior to 1989, Mr. Rock was a partner of Touche Ross (now Deloitte & Touche). Mr. Rock is a Certified Public Accountant (CPA). Read more...

Paul K. Richey Joins FOCUS as Regional Managing Director in Los Angeles and John Simpson Joins FOCUS as Managing Director in San Francisco
New Los Angeles Office and Expanded West Coast Presence Strengthens Technology and Business Services Expertise

FOCUS announces the opening of its Los Angeles office and the addition of two managing directors, Paul K. Richey and John Simpson, to the growing Western region.

“Our firm is pleased to be adding John Simpson’s deep technology experience. He will be based in our San Francisco office while Paul Richey will be the new regional managing director in our new L.A. office, where he will concentrate on manufacturing, distribution and business services,” said Doug Rodgers, the firm’s CEO.

The expansion of FOCUS’ Western region follows recent acquisitions of three regional banking firms; Education Capital, LLC of Washington D.C.; Floberg and Associates of Chicago and Madison Cabe Group, LLC of Charlotte, N.C., further strengthening the firm’s national reach.

About Paul K. Richey

Prior to FOCUS, Richey served as president of Janas Associates, a boutique investment banking firm in Pasadena. At Janas Associates, he led M&A activities for privately held companies with revenues up to $250 million.

About John Simpson

Simpson joins the growing FOCUS’ San Francisco office to help expand the firm’s technology and IT services practice. Prior to FOCUS, he founded Oynx Associates, a regional M&A firm serving private companies between $5 and $100 million in size. Read more...

RECOMMENDED READING: Understanding What You Know—How Business Intelligence Has Come of Age

The October 23, 2007 issue of the The Wall Street Journal included an interview of Tom Davenport, of Babson College in Massachusetts, who is an expert on business intelligence, a field that includes software that exploits data generated by other business programs to help companies monitor their operations, make decisions and spot trends. Mr. Davenport also is co-author of “Competing on Analytics: The New Science of Winning.” Here is Mr. Davenport’s response when asked to describe the benefits of business intelligence:

“I define business intelligence into really two categories. One is just reporting, knowing what is going on in your business…If you are a public company you have to report accurately on what is going on in your business. Two, you get relatively early warning on how you are performing so you can fix the problem, and you can educate managers about your business.

Analytics, which is the other key category of business intelligence, is more understanding-oriented in terms of knowing what factors are really driving your business performance, or prediction-oriented, looking forward instead of backward.”