(Photograph by Thomas Hart Shelby.)

By 2005, Milstein’s sons were successfully running the company that had expanded to 363 stores and 28,000 employees in 42 states. Then, he recalls, "I woke up one day and realized I wasn’t so young anymore." Because the family held so much stock, he feared that upon his death, estate-tax bills would force them to sell the company.

While time conspired against Milstein, now 80, the economy was on his side. When he decided to sell in 2006, he dove into a market flooded with private equity investors. Last year, mergers and acquisitions numbered more than 11,000—up from 7,400 in 2002, according to Thomson Financial and Robert W. Baird & Co. Milstein and investment bank Goldman Sachs sold Burlington Coat Factory to Boston–based private equity firm Bain Capital (cofounded by Mitt Romney) for $2.1 billion in a take-private transaction.

"It’s a seller’s market," says Paul Schaye, managing director of Chestnut Hill Partners, a New York–based boutique investment bank specializing in M&A originations for private equity investors. He describes it as a "very frothy" marketplace right now. "Everybody is awash with money, and interest rates are low enough that you can leverage businesses and buy businesses. Sellers can ask for lower fees from investment banks because the banks are tripping over themselves to get deals," he adds. "If a business is doing well and it’s a noncommoditized business, sellers can ask for the full price."

But selling a family business means more than just calculating the numbers. Multigenerational businesses carry tremendous emotional weight—and can often be the entity that ties together otherwise disparate family members. Liquidating a business can bring newfound wealth and freedom to some members of a family, most often the older generation, while leaving others, usually sons, daughters, nieces and nephews, with little but broken family bonds and no direction for their individual careers. Contrary to popular perception, many younger family business employees hold little or no equity in the companies built by their forebears.

Despite risks, the booming M&A market is luring more and more families to sell out. Bob Burns, managing director of the Minneapolis branch of private investment banking firm Goldsmith Agio Helms, points to another factor driving privately held businesses to the auction block: larger competitors created by mergers and acquisitions, whose indomitable access to capital puts the squeeze on smaller companies without such resources. "When a family runs a business for one or two, or even three generations," Burns explains, "there is a point where the family loses its appetite to reinvest family money and put more money at risk in a more highly competitive national and international environment."

These dynamics combine to make the current M&A frenzy very alluring to family business owners. But this path is also fraught with pitfalls. Worth spoke with three entrepreneurial families who recently decided, for various reasons, that the time was right to liquidate.

Browbeating the Bankers
Burlington Coat Factory

Milstein’s father, a product of the Great Depression, harbored a cautious, defensive attitude toward business that made him hesitant to gamble on untried tactics. When Milstein’s wife stepped in and offered a hoard of her earnings, which she had squirreled away as a school librarian, her father-in-law asked: "What do you want to take this risk for?" Milstein recalls. "My father was a very experienced businessman, had made it all through the Depression, and he thought it was a bad risk. She said, ‘I’ll take my chances with you. If you don’t do it, you’ll regret it all your life.’"

By 1983, Burlington Coat Factory had grown to 28 stores and went public. The family maintained 63 percent ownership, and two of Milstein’s three sons, Andrew and Stephen, eventually took management positions. The retailer expanded to 363 stores in 42 states with $3.2 billion in sales in 2005. But as Milstein entered his late 70s, he knew his success couldn’t buy immortality—or a tax shelter for his scions. "The fear always was, upon death, the huge estate tax they would have to pay would be a pressure on us," he says. "We bought some life insurance, but it was never enough."

Ironically, Burlington Coat Factory was at the peak of its power, beating larger competitors by offering similar clothing at lower prices. Milstein recalls that the first time a Wal-Mart moved adjacent to one of his outlets, his store doubled its sales in two years because of the increased traffic.

But the estate-tax threat was daunting; Milstein feared it would force his sons to sell the company he had spent 34 years building. To preempt this fate, he chose to liquidate on his own terms. "If we were going to have to break it up, this would be the time to do it. The federal capital gains tax was down to 15 percent," he says. "The equity firms were paying higher prices and I had moved to Florida, which has no state taxes."

The decision didn’t sit well with his children. "They were upset at first. They didn’t want to sell," Milstein says. "They said they could understand my feelings, but they were too young to retire. For me it was easier."

Andrew, now 54, was working as the company’s executive vice president and executive merchandise manager when his father voiced his intentions. He had joined Burlington in 1989, leaving his position as a partner with the law firm of Phillips Nizer. At the time, he admits to having mixed feelings, and perceived the sale as being prompted less by estate-tax issues and more about getting a good price.

Burlington Coat Factory then hired Goldman Sachs to search for suitors. In 2006, the stock was trading between $17 and $21 per share, having split four times since its IPO. Milstein, however, refused to sell for less than $45 per share. "When it was at $20, we weren’t sure we could get $40. It was a dream," he recalls. "We felt the price we’d probably get would be around $30. But the market developed that year, our stock started to move up and it . . . looked like a possibility." He must also have been watching as other retailers—Neiman Marcus, Toys "R" Us, May Department Stores and Sears—were snapped up for billions.

Goldman invested months studying Burlington, preparing the book and discussing it with 40 potential buyers, Andrew recalls, before informing the family that their price of at least $45 per share was excessive. "Goldman said to my sons, ‘The stock is jumping up because of speculation, but it doesn’t mean we’re going to get a premium over the price the market is at.’" (Goldman Sachs declined Worth’s request for comment.)

Milstein’s response was simple: "Tell them I expect to get more than $45 a share. Tell them that I’m paying them to sell the company and they shouldn’t argue with me about the price I want. They should be able to argue with the customers why it’s worth that price!"

At the end of bidding, Bain Capital offered the most money—slightly less than $45 per share. It wasn’t enough, particularly for Milstein’s sons. "When Bain was the last one standing, they said, ‘You know, we’re the high people,’" Andrew recalls. "I said, ‘We don’t have to take the deal.’"

Father and sons agreed. "The auction process ran out of gas before $45, and I told Goldman I wasn’t interested in selling for less than that," Milstein says. They held firm. Finally, Bain took the company private for $45.50 per share in a deal that closed in April 2006 for $2.1 billion. According to SEC filings, Andrew and Stephen each owned roughly 6 percent of Burlington, or about 2.5 million shares. At $45.50 per share, they each earned more than $113 million.

After the sale, the Milsteins offered to consult with Bain, but the new owners never asked for their help. Bain eventually offered $15 million as part of an extended noncompete agreement, but Milstein’s sons turned down the proposal in favor of a 12-month noncompete, which would enable them to return to the market quickly.

Although they have yet to go back into business, they are eying new ventures. Milstein, like his father, now urges caution. "I think my boys have considered going into business again. There’s nothing wrong with that, but be more careful before jumping into it because it took us a lifetime to make this money. If you lose it quick, everyone’s going to laugh at you." For his part, Milstein has no plans to go back to work; he describes his current life as "vacation seven days a week."

Andrew, however, has been busy investing his money. He admits that growing up with most of his family’s wealth tied up in a company has made him unadventurous with wealth. "Any money outside the business we always treated like mattress money," he says. "So now, even though I don’t have anything invested in the business, I’m still very conservative."

Andrew and Stephen will consider other ventures, but Andrew refuses to take risks on any perilous opportunities. As if channeling his late grandfather, he says: "There are infinite ways to lose money."

Feeling the Squeeze
Clemens Family Markets

Jack Clemens’ father and uncle started a tiny market—perhaps 1,000 square feet—just outside of Philadelphia in 1939. When the Clemens family opened their area’s first supermarket in 1954, it was novel and huge at nearly 15,000 square feet. Today most markets dwarf that size, particularly enormous hypermarkets and wholesale clubs. In many ways, the U.S. economy has mirrored this change. As Burns points out, the marching roll-ups and expansions of megaretailers forces smaller companies to expand or close.

Clemens, 58, began working part time in the family business in 1963. He worked his way up to president by 1986, and, two years later, ascended to CEO and chairman. Two of his sisters, a brother and more than a dozen other family members worked in the business over the years. Under Clemens’ tenure, the chain reached $300 million in revenue with 2,800 employees. But during the past 15 years, the environment in which supermarkets do business has changed dramatically. "Other specialty shops were starting to open up that carried a lot of the products we carried, such as pet foods. And Wal-Mart started to come in, and it started taking laundry detergents and the paper goods. And then Costco and BJ’s opened and drugstores got into the food business. And then the convenience stores started carrying food also," he laments.

Clemens also faced increasing costs to build, expand and upgrade stores in order to compete, along with rising expenses for employee health insurance and banking and credit card fees—all this in a sector in which 1 percent is considered a good margin.

On top of new competitors and higher costs, Clemens was squeezed by the onslaught of bigger supermarket companies. SuperValu (which owns 2,500 stores) acquired Clemens’ primary supplier, as well as one of its principal retail competitors.

In 2005, even as Clemens was hiring a supermarket consultant to explore strategic options, he realized he would have to grow beyond the family’s two dozen stores or sell. Expanding meant either going public or taking a large private equity infusion—alternatives that would dilute the family’s stake. Clemens once even discussed merging with a local competitor, the family that owned Genuardi’s markets. But Safeway, which operates more than 1,700 stores, purchased Genuardi’s in 2001.

Clemens also had little idea who would take over for him as he neared retirement. He blames himself for not developing a formal program to groom family members. While his father had urged him to go into the business, Clemens did not place the same pressure on his children, leaving no one to replace him.

Faced with these circumstances, Clemens and his board decided to sell. Planning for the sale took roughly 18 months; the transaction proved relatively tame compared to Burlington’s imbroglio. Giant Food Stores, a division of the $60 billion Dutch grocery giant Royal Ahold, purchased 14 Clemens stores. C&S Wholesale Grocers, a $20 billion food warehousing and distribution company, acquired eight stores, then quickly resold six of them. Clemens would not discuss the terms of the sale, which closed last September. According to reports, the 14 stores that Giant Foods bought grossed about $190 million in 2005. Clemens counted family members and workers among some 150 shareholders.

Today Clemens looks forward to spending more time with his family, vacationing and racing his 1970 GTO. The decision to sell, however, was not predicated on his retirement. He still envisions a few more years of work ahead as he continues to consult with Giant Food Stores; he also hopes to work with other family businesses. One of his sisters plans to continue operating grocery stores, and some family members have stayed on with the new owner.

Clemens struggled with balancing the pressure to perpetuate the family company against the decision to liquidate. "It wasn’t easy. It took many years for us to come to this conclusion," he explains. "You put your whole life into it, it’s emotional. Actually, if your name’s not on the buildings anymore, that’s really tough to see."

Looking back, however, he feels vindicated by discussions with his uncle just before he died. "He would say, ‘I can’t believe this is still going. You’re doing a great job. It’s way beyond what we ever expected it to be,’" he recalls. "To hear that from your founder, you know you’re doing a good job, but yet he’s saying, ‘You know you don’t need to keep it going.’"

Ready to Walk Away
Briggs and Sons Tire

Bob Briggs was working for a Lincoln-Mercury dealer in Clinton, N.C., in 1972 when the gas station down the street came up for sale. He’d been performing auto work since the age of 15, so he and his wife, Barbara, decided to launch a new venture. "We decided to go into the gas station business, against the advice of our banker," says Barbara, 64, who became the company’s president. Her husband took the vice president’s role.

SONS AND daughters-in-law worked for Barbara and Bob Briggs’ tire business before the couple sold it to a family-run competitor.

Bob and Barbara agreed to purchase the station for $1,000 cash, but the owner reneged at the 11th hour—and instead asked them to make him a partner. They agreed. One year later, Bob realized he no longer needed a partner and moved to buy out the former proprietor. By then, the business had grown and the buyout price ballooned to $13,000 (roughly $58,000 in current dollars).

The couple gritted their teeth and bought him out. They foresaw better margins in auto work than pumping gas, so they invested more capital into the business. Within a few years, they purchased a bigger building and affiliated with Goodyear. Over 30 years, the business grew to include 11 locations and a retread plant near Fayetteville, N.C. Their five-figure stake had grown into one of the 100 best-performing independent tire dealerships in the country, with more than 100 employees and annual revenues of $15 million. They also brought two of their three children into the business, now known as Briggs and Sons Tire.

Their three sons, now 42, 40 and 32, grew up with the business. "They pumped gas, they swept the floors, they did everything," Barbara says. The older sons stayed in the business, working all aspects of it. Barbara and Bob’s daughters-in-law also worked for the company.

When Barbara and Bob began nearing retirement age, they considered extracting liquidity from the company. They didn’t think of hiring an investment bank or broker to find a match, nor did their children have the capital to buy them out. But they found a logical suitor in Black’s Tire & Auto Service, another family-run business, with more than two-dozen locations in the Carolinas. "We had contact with them all through the years, and they’ve been rather aggressive over the years in acquiring different locations," Barbara explains. "We had casual conversations here and there and then it was, ‘OK, let’s sit down and talk.’"

The decision to sell the company was difficult for the children. "They were shocked. They weren’t expecting it," Barbara admits. "I think they just kind of thought they’d be here forever." Eventually, she says, they accepted that it was the right thing to do. (The Briggs family refused to reveal the sale terms and turned down requests for interviews with the sons, who did not have any equity in the business when it was sold.)

Barbara and Bob say the deal, closed in February, has served to normalize family relations. "A family business is hard on a family." Barbara says. "You’re not just a parent, you’re an employer to your child, and your expectations of your child versus the expectations of another employee are different; you treat them differently."

They did not consider asking for a stake in the newly expanded Black’s business, preferring to sell outright. "We were ready to just walk away," Barbara adds. She stayed on for only three months to facilitate the transition. Bob retired from day-to-day involvement quickly, she says with a laugh, turning to golf and spending time with their youngest son’s child.

Their oldest son continues to work in the business, while their middle child left during the changeover. Barbara admits that remaining with the transition team has been difficult. "It’s harder for me being in the midst of it and seeing it change." Retirement will bring a mission trip to Cuba, more hours with their family and relaxation at their home on the North Carolina coast. "We wanted to do all those things we like to do while we’re still able to," Barbara says. "It was an opportunity that came along and we took it. We had no guarantees along the way. We’ve been blessed beyond any expectations that we ever had."

Lee Gimpel is a business and technology writer based in Richmond, Va.