Family Succession

Family succession is a true test of your priorities as a business owner. The positive is that the purchaser is well known and concerns about confidentiality are relatively low. The personal satisfaction of building a lasting legacy that survives multiple generations is also something that appeals and is a priority to some owners. 

In our experience, though, there are trade-offs that need to be understood and able to be resolved. We can help you with questions about how to:

• Stage the transaction – clean cut versus staged over years? Our observation is that family succession generally takes longer and has to be carefully managed and deliberate compared to a standard sale process. By comparison, a sale to an external party typically represents an opportunity (depending on the type of business) to sell and then leave within a short period of time.
• Manage your ultimate escape. It is one thing to transfer or sell your shares in the company to family members – it’s another thing to cut your personal and financial ties to the business (particularly if the proverbial hits the fan at some stage in the future!). Be clear on what your preference is and how to achieve this?
• Make sure that there is proper documentation. If anything, it is more critical for a family sale to have written documentation than a sale to an external party. Getting legal input on the written documentation required for the transaction is essential.
• Confirm that family really does want to buy the business. Not everyone wants the commitment of owning a business. Sometimes this can just be a question of getting timing right for everyone involved. While you may want to hand the business over, your family members may not be in a position or inclined to take ownership if they are too young or not sufficiently prepared! Equally, family at the early stage of their respective careers might want to prove themselves with other achievements before committing to the family business.
• Confirm that the family has the necessary skills to run the business. Often business owners undervalue or underestimate the level of knowledge they have built up over their careers. The prospect of stepping into your shoes can daunting to other family members. Or worse, family may completely underestimate the skills required and find themselves overwhelmed at some stage in the future.Determine whether the future senior management team is as strong as it needs to be without your day-to-day input.
• Finance the transaction. Often there will be limitations on how the family will finance a transaction and therefore there could be limitations to the cash returns that can ultimately be extracted from the business. In some ways this is a similar position to many management buy ins / outs.

We can help by:

• Providing a benchmark to an external, wider market transaction (both in terms of value and required sale process). Often family-based transactions are more ‘friendly’ to the purchaser than what a true market transaction would be – for example, in overall value; the terms of payment or the tranches of shares on offer. Regardless of these terms, though, we find that owners like to be fully informed on what they are offering the family by being able to benchmark to the wider market.
• Mentoring the new generation and adding structure to the business to support the business owners. In the shorter term, we can support the family by providing external advice and experience to bridge the gap to get a complete and successful transaction.
• Providing options on the best structure for a potential transaction.

These are often areas that take some time to resolve, but if done properly, family succession can be very rewarding to both you and your family successors.