LEARN WHEN TO SELL A FAMILY
BUSINESS -- Selling a family business successfully involves
much more than how hot the industry or the financial markets
In the article below, “What to Consider When
Selling the Family Business,” François M. de
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
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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to friends, colleagues, and networking contacts. (Go to www.focusbankers.com
for newsletter archives.)
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
- Building Products
- Business Process Outsourcing
- Business Services
- Call Center
- Education and e-Learning
- Energy, Oil and Gas
- Food and Beverage
- Government Contracting
- Information Services and Databases
- Information Technology: Hardware
- Information Technology: Services
- Information Technology: Software
- Media and Publishing
- Medical Devices and Equipment
- Medical Diagnostics
- Metals and Mining
- Payment Systems
- Professional Services
- RFID Technology
- Satellite Communications
- Security Systems and Services
- Supply Chain Management
- Systems Integration
- Telecomm and Wireless
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
Inquiries should be addressed via e-mail
by telephone to 202-470-1973 or by fax to 202-785-9413.
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.
Portugal-based EFACEC is a leading supplier of automation systems
and infrastructure solutions to the global energy and transport
sectors, employing more than 2,500 people in 60 countries worldwide.
The sale of ACS to EFACEC comes on the heels of two recent
international deals orchestrated by FOCUS: Dunn Solutions Group
to Cranes Software, based in India; and AGC Engineering to
Alfa Laval, based in Sweden. For more information, go to http://www.focusbankers.com/tombstones/deal_ACS.asp.
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.
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
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.
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).
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
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.
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
- 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
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
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
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
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.
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
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.
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.
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
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
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
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
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.”