By Riva Richmond
The toughest moment for the owners of a
family business may be deciding whether to kiss it goodbye.
The decision often means weighing concerns
about the livelihoods of family members, a departed parent’s
legacy and the emotional baggage that entails, or the family’s
very identity and sense of purpose. Some family members may
want to invest and work hard to develop the business, while
others may want to liquidate and relax. Older family members
may want to defend their legacy, or perhaps let go and retire.
Younger members may want to try their hand at running the
show, or to cash out and invest the money elsewhere. The competing
agendas can create significant strife, especially if many
people and multiple generations are involved.
Yet, experts say, if a family is well prepared,
is realistic about its options and gets the timing right,
the process can produce a solution that works for everyone
and ultimately may even enhance family harmony.
“For the owner of a family business,
it’s not just a financial asset, it’s a heritage,
it’s a culture, it’s status in the community,”
says Francois M. de Visscher, founder and president of family-business
financial-services specialist de Visscher & Co., Greenwich,
Conn. “The decision to sell is always a very difficult
decision. And that decision needs to be reached on the basis
of a sound evaluation of the alternatives, and has to be based
on trust among the family members and information and communication.”
While the impetus for a sale often comes
from within the family, a growing number of families are likely
to have this decision thrust on them. Globalization is driving
companies to get bigger and more efficient to compete, fueling
strategic buying sprees and industry consolidation. Meanwhile,
the private equity industry is showing increased interest
in family concerns, which often have the kind of untapped
potential these firms look for and tend to have low-debt profiles
that make for particularly attractive investments in today’s
tough credit environment.
One crucial consideration for families
thinking about selling is timing, experts on family businesses
say. Would they get a better price if they spent some time
sprucing up the business? Or is now the time to sell, problems
or not, because a changing competitive landscape could erode
their bargaining position over time?
Edward S. Carroll Jr. entertained calls
for several years from Six Flags Inc. about selling the amusement
park he ran with his two sons, Riverside Park in Agawam, Mass.
He always said no, worried about putting his sons out of work.
Besides, the park was in his blood; Mr. Canoll’s father
started it in 1940, and “56 years later we were still
there selling family fun on sunnier nights,” he says.
by 1996, Six flags had become a big power in the amusement
business through acquisitions, and another threat to the Carrolls
was emerging to the south: Foxwoods Resort Casino, founded
10 years earlier, was expanding aggressively. Mr. Carroll
decided to talk to Six flags, and sold within a couple of
“We were afraid if we didn’t
react to [Six Flags’] offer, they would build a park
in the Northeast or partner with Foxwoods,” he says.
Riverside “was the source of my livelihood and my sons’
livelihoods, and the first question is: Are you going to get
enough in the sale so you don’t have to worry about
that? We were able to do it.” Now his sons are happy
in jobs with weekends off, and “I just play golf,”
Families are more likely to make
a good decision about a sale if they’re prepared to
consider one, experts say. Having to quickly weigh the business’s
options and family members’ conflicting desires only
after a bid is received is harder and a bigger risk to family
The Yanco family was tested by a surprise
offer from Hess Corp. in 2002 for the four gas stations they
owned as part of their Peabody, Mass., business. Glenn Yanco
bad approached Hess to ask about gasoline prices, thinking
he might switch suppliers, when the overture came. He asked
the advice of his father, then in semi retirement, who had
started the business in 1969.
“He didn’t want to break up
a business that the family was in for so many years,”
Mr. Yatico says. But his father ultimately agreed that the
business environment made a sale the right choice. The gas
stations’ profit margins were getting slimmer all the
time amid rising gas prices and stiffening competition from
big rivals with slicker, 24-hour stations. The two men broke
the news to Mr. Yanco’s three siblings, who also worked
for the company. “They were shocked,” he says.
“There was a day or two when we didn’t talk to
each other maybe.”
The family overcame that shock. Mr. Yanco’s
brothers now work elsewhere, and his sister oversees bookkeeping
for the family’s surviving business, Stadium Oil Heat
Inc., which delivers heating oil and other products in a few
dozen towns north of Boston.
But in a bigger company, with more family
members involved, being unprepared for an offer can have a
more lasting impact.
Mr. de Visscher, the adviser, recommends
that larger family businesses set up governance structures
to help manage the process of considering any offers. That
structure might be a family council, with representatives
from each branch, or a family-run office with a staff that
oversees all family investments. Whatever the structure, he
says, it should be separate from the company’s board,
whose goals may not be the same as those of the family.
“It’s separating the business
the family from the family business,” he says.
Of course, a sober look at a company’s
operations, including its strengths and weaknesses, opportunities
and obstacles, is vital to making a wise decision on whether
to sell a business. To keep that assessment objective, an
outside adviser may be helpful.
At Fostoria Plumbing, Heating & Electrical
Supply Co., in Fostoria, Ohio, disagreements over how to run
the business had escalated into bitter arguments among six
siblings who own the company. In an effort to end the discord,
one of the siblings, Michael Rehihardt, head of operations,
brought in a consulting firm, Strategic Business Partners
LLC, of Arlington Heights, Ill., last year to study the company
and make recommendations on how to proceed, including the
possibility of selling the business. The idea was: “Let’s
see what someone else thinks of the business,” says
Elizabeth Cook, Mr. Reinhardt’s sister and the company’s
financial chief. “Do we even have something worth selling?”
The consultants found the company was on
the right track but in need of a slew of changes, including
upgraded computer and accounting systems and more advantageous
purchasing agreements. Mr. Reinhardt, Ms. Cook and another
sister wanted to hold on to the company and implement Strategic
Business Partners’ suggestions, Ms. Cook says. Three
other sisters chose to sell their stakes to the company; that
buyout is still being negotiated.
In this case, though, achieving a decision
on the company’s fate wasn’t enough to keep the
family together. Now focused on the same goal, “Mike
and Marge and I are getting along great” and the business
is getting stronger, says Ms. Cook. But “our sisters
who have left the business won’t talk to us.”
One of the three sisters who are selling their stakes declined
to comment; the other two couldn’t be reached.
There are still other options for
families that want to step back from the business without
getting out entirely, such as finding a buyer, perhaps in
private equity, that would keep family members on and agree
to some continued family ownership. Ms. Cook says that’s
a route she and her siblings might go when they get older
and want to slow down.
And if a family wants to make an exit but
isn't comfortable with an initial suitor, it can enlist investment
bankers or business brokers to try to drum up a buyer it can
“At the end of the day, it’s
their company and its their decision who to sell to,”
says Ross M. Posner, associate director of Allstate Investments
LLC, the private-equity arm of Allstate Corp.
to Riva Richmond at email@example.com