Corporate Finance & Planning Insights for Multi-Generational Family Businesses
Among our family business clients, the issue of shareholder liquidity is always top of mind, and is occasionally a source of confusion among shareholders, managers, and directors. Large or small, regular or “special” dividends paid to family shareholders can really only come from five places. In this week’s post, we attempt to bring some clarity to the question of where dividends come from.
We’ve recently observed private equity investors learning a lesson about liquidity risk, which family shareholders have always known. A couple of weeks ago, the Wall Street Journal noted that — amid a sluggish M&A market — PE-backed companies were increasingly turning to lenders to fund so-called dividend recapitalizations in a bid to provide liquidity to impatient investors. This week, we explore a PE strategy that might be worth considering for some family businesses: divided recapitalization.
A recent Wall Street Journal article noted that, while the effects of the pandemic have receded from many aspects of American life in mid-2024, investors continue to deal with dividend disruptions. According to the article, of the 187 U.S. companies that suspended dividend payments during the pandemic, all but 47 have resumed payouts. With the competing claims on operating cash flow from the perspectives of the family business and family shareholders, managing dividend expectations can be a delicate dance. Finding and forging consensus on what the family business means to the family can help make sure that everyone is at least dancing to the same tune.
As Thanksgiving approaches, it reminds us of the unique challenges family business directors face in balancing what the family needs with the needs of the family business. A clear understanding of what the business means to the family is essential if decisions about dividend policy and capital allocation are to be made in a coordinated manner. This week’s post emphasizes how the meaning of your family business can help your family business directors decide who eats first — the family or the family business — this Thanksgiving.
Birkenstock, the renowned comfort shoe brand, is poised for its initial public offering (IPO) this week, reflecting its recent surge in popularity amid the shift to casual fashion during the pandemic. However, with revenue growth slowing when adjusting for price increases, Birkenstock faces the challenge of convincing investors their sandals are more like sporty Nike or Lululemon, and not like Crocs. Although most family businesses will never go public, this post focuses on the intricate decisions that family businesses must make regarding dividend policies and capital allocation, to determine what kind of company their family business is.
Travis Harms provides an insightful examination into the important topic of dividend policy in family businesses. He explains how to go about the decision-making process regarding distribution and why considering various shareholder characteristics and business attributes matters. He breaks it down into four types of dividend policies, highlighting the balance between shareholder certainty and board discretion, fostering a better understanding of maintaining the sustainability of the business, and promoting positive shareholder engagement.
Your family business may likely be one of your largest assets, but not the only asset. Thinking holistically about your family’s complete balance sheet, not just the operating of the business, is a good mindset for fostering longevity, family harmony, and shareholder engagement.
In this post, we discuss three key financial areas that family businesses generally focus on. Having an accurate picture of the complete family balance sheet will help inform the ultimate decisions made at the family business level that optimize shareholder returns and maximize total family wealth.
As market and financial data for 2022 continue to roll in, we are beginning to prepare for our annual benchmarking study. One early finding is that investors clearly distinguished between companies that pay dividends and those that don’t. Across the size spectrum, investors favored dividend-paying stocks in 2022. While it was a down year across the board, the average return for companies that paid dividends was less negative than those that did not. In this post, we explore two potential reasons for this outcome and the lessons for family business directors.
I recently got back from the AICPA’s Forensic and Valuation Services conference in Las Vegas. While I came back richer in experience and CPE credit, the green felt of the blackjack table was less kind to my wallet. Matching your family shareholders’ growth objectives with their relative risk tolerance is a key directive for family business directors and one that is tied directly to what your family business means to you. We highlight two corollary questions relating to growth, risk, and business meaning: investing decisions and distribution policy.
This summer, we partnered with Family Business Magazine to conduct our inaugural survey of dividend practices at family-owned businesses. This week, we feature an article that we wrote for the magazine summarizing the survey results. We hope you enjoy and gain some insights that can help you and your family evaluate your current policy and make plans for the future.
Now is an excellent time for closely held and family business boards to consider engaging in leveraged transactions to enhance shareholder liquidity and accelerate shareholder returns. The Biden Administration has not yet increased corporate or personal tax rates and interest rates are still low. Banks are seeking quality loans and your leveraged transaction might fit their bill. And perhaps your shareholders desire some liquidity from their ownership, even if you are not ready to don’t desire to sell your company.
In this post, two corporate finance tools available to owners of closely held and family businesses are discussed at length: Leveraged Dividend Recapitalizations and Leveraged Share Repurchases. These tools can be used to create liquidity outside the ownership of private businesses or interests in them.
In a recent Wall Street Journal article, Professor Alex Edmans of the London Business School offers an impassioned plea for public companies to stop prioritizing dividend payments. While his provocative suggestions may have some merit for public companies (which were, in all fairness, the professor’s intended audience), they do not translate well to most family businesses. So, how should family businesses think about dividend policy? In this post, we provide a non-exhaustive list of five things to keep in mind while evaluating your family business’s dividend policy.
The intersection of family and business generates a unique set of questions for family business directors. We’ve culled through our years of experience working with family businesses of every shape and size to identify the questions that are most likely to trigger sleepless nights for directors. Excerpted from our recent book, The 12 Questions That Keep Family Business Directors Awake at Night, we address this week the question, “Does our dividend policy fit?”
This post is the fourth and final installment from our Corporate Finance in 30 Minutes whitepaper. In this series of posts, we walk through the three key decisions of capital structure, capital budgeting, and dividend policy to assist family business directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. This week, we focus on distribution policy.
A recent article in the Wall Street Journal chronicled the slow demise of the Woolrich Woolen Mill. For the first time in the company’s 170 year history, it will no longer have any U.S. based production. The Woolrich saga is a vivid reminder of how challenging the appropriate balance between dividends and reinvestment is for family business directors (and of the real-life consequences those decisions can have). For this post, we asked two (hypothetical) colleagues with differing perspectives to review and comment on the recent story.
The recent announcement that General Electric is slashing its shareholder payouts by more than 90% has put dividends in the headlines in recent days. The news coverage provides an opportunity for family business directors to re-visit dividend policy at their own companies. While we wouldn’t want to suggest that the GE dividend news tells savvy family business directors anything they didn’t already know, a few reminders about dividend basics seem fitting.
Stewarding a multi-generation family business is a privilege that comes with certain responsibilities, and each family business faces a unique set of challenges at any given time. For some, shareholder engagement is not currently an issue, but establishing a workable management accountability program is. For others, dividend policy is easy, while next gen development weighs heavily. Through our family business advisory services practice, we work with successful families facing issues like these every day.
This is the inaugural post for our Family Business Director blog. By way of introduction, we thought we would anticipate a few questions that you might have.
