Richard Morgner,
a managing director and head of mergers and acquisitions at Chanin Capital
Partners, an investment bank that advises family businesses, notes that the
extent of the purge required really depends on the buyer’s strategy. “If the
buyer’s a competitor, it may want to eliminate management. They’re not buying
your business for the management or the family expertise; they’re buying it for
its customers, its assets. But if it is a private equity firm, it may need a
management team. In many situations, there is a great CEO [in place], but the
buyer needs to bring in professional finance and accounting staff.”The loss
of family members’ job security is often a barrier to consensus over a sale.
“There may be members of the family who just worked there, who are not true
owners, and who therefore will not benefit as much from a sale. Our advice in
those situations is to think about it up front, before the transaction,” Morgner
says. Some families give employment contracts to their members before the sale,
but this is obviously not welcomed by buyers who want to make their own staffing
choices. “Sometimes it just means that someone in his 30s or 40s is going to
have to find a job working for someone else for the first time.”
An Exit or Hallway?
Even those cohesive families with creeds in place and
their decision-making apparatus fully functional may find their greatest
challenge is knowing when to sell. Ted Beringer, who runs a Bryn Mawr, Pa.-based
firm that advises family businesses on exit strategies, says he sees more
willingness to sell now than in the past. “When I first started, most people
were keepers. Now most people don’t know.” A partial explanation is the enormous
increase in valuations of family businesses during the 1990s. Another is the
different mind-set of the baby boomer generation. “The guy who came out of World
War II said, ‘I got to give this to my kids.’ It’s not that way with the baby
boomers,” he notes. This is not necessarily a bad thing—especially if it
prompts the family to exit a business sector in decline. It can also allow the
family to take the liquidity from a sale and view it as the new family asset. In
other words, managing the family money becomes the family business. “Just
because you sold all or part of your business does not mean you don’t still have
a family business,” Beringer says. “If you run the money like a business, it
involves all the benefits of a family business, like keeping your kids around
and involved.” Illustration by Lisa Franke
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