Selling a family business
For many family offices the times when businesses are sold are the most pivotal for family wealth and emotions. The process generally requires a team of specialist external advisers that the family office will be expected to co-ordinate.
The decision to sell a business that you own or control is not an easy one. If the business has been inherited, there may also be additional emotional milestones, including family consensus, that need to be overcome. However the fundamentals remain the same.
Private companies can be split between owner managed and those with independent management. If an owner feels that a company has grown to a size where he or she no longer has the expertise – or time – to manage it, they can appoint an independent board as an alternative to selling.
However, if the company has reached a size where the family feels too much of their wealth is tied up in one asset then a sale may be appropriate. Another option is a partial sale, although this then brings complications in managing relationships with co-investors.
The sale of family business happens for many varied reasons. For example, it may be that a liquidity event is required in order that next generations can afford to set up their own businesses and make their own investments. Or the current business owner may wish to take some of the proceeds off the table to enjoy.
Preparing a business for sale is complicated. Investment bankers often need to be appointed to calculate a business’s value as well as identify the widest universe of potential buyers in order to get the greatest price. The investment bankers will also advise on strategy and structuring as well as assisting with negotiating and closing transactions. Different investment bankers can be used for different parts of the sale.
For some owners, achieving the greatest price is not the main priority and other factors are important. For example they might want to protect certain aspects of the brand or key employees. They might wish to remain involved – or of course they might feel strongly that they are not involved at all!
It is also critical for the family to have thoughtful tax, trust and estate planning in place prior to any sale. If badly planned, liquidity events do not necessarily create the financial security anticipated.
Generally an owner will take over a year planning and executing a sale. For the company itself, accounts need to be in order as well as any real estate leases and key employment agreements – to name but a few considerations. There are always exceptions and sometimes unexpected external forces demand a much faster timeline. For example recently with the (admittedly still ongoing) sale of TikTok by ByteDance in the US. ByteDance (owned by China’s 10th richest man, Zhang Yiming) is the parent company of Tiktok, and the proposed purchaser of TikTok is Walmart (51% owned by America’s richest family, the Waltons) in partnership with the tech giant Oracle (36% owned by the US’s 4th richest person, Larry Ellison). This is a prime example of how wealthy families are operating on an institutional – arguably national – scale and there will be some very busy and highly skilled family office professionals working in the background.