Leveraged Dividend Recapitalizations and Leveraged Share Repurchases
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?”
Part 4 | Finance Basics: Distribution Policy
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.
Takeaways from General Electric
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.
Corporate Finance & Planning Insights for Multi-Generational Family Businesses
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.