Category

Planning & Strategy

---

July 1, 2024 Capital Budgeting Capital Structure Shareholder Engagement

The Supreme Court Weighs in on Shareholder Redemptions

Earlier this year, we wrote about the Connelly case heading to the Supreme Court for final adjudication. The Court handed down its ruling in June, siding with the IRS in a unanimous decision. While the Supreme Court’s economic reasoning in its Connelly decision is impeccable, the need to redeem shares to fund eventual estate tax obligations of significant shareholders can disrupt, or at least complicate, the best-laid plans of growing family businesses. The Supreme Court’s Connelly decision is a timely reminder that family businesses and their shareholders need to work together to prepare for possible redemptions.

June 24, 2024 M&A Special Topics

How Does a Quality of Earnings Report Differ from an Audit?

A quality of earnings (“QoE”) report and an audit are both essential tools in the business world, but they serve distinct purposes and offer varying insights.  Audits are broader and regulatory in nature, whereas QoE analyses are more focused and strategic, catering to the needs of investors and decision-makers who require a deeper understanding of a family business’s true financial health and future potential.

June 10, 2024 M&A Special Topics

What to Look for in a Quality of Earnings Provider

The cost of M&A failures is high for both buyers and sellers of family businesses. For buyers, overpaying for a target can hamper returns and crowd out other more attractive investment opportunities for years to come. Sellers only get one chance to sell their businesses. Failing to maximize proceeds represents a missed opportunity they can never get back. These high stakes mean that thorough and high-quality due diligence is critical. A Quality of Earnings (or QofE) analysis is an essential component of transaction diligence for both buyers and sellers. Optimizing your transaction diligence requires assembling the right team.

May 29, 2024 M&A

A To-Do List for Evaluating Acquisition Offers

The tyranny of the urgent imposes itself on family business leaders just as it does on everyone else. In this week’s post we offer a to-do list for family business directors should they come up against an acquisition offer. The items offered for consideration will help reflect priorities for the long-term sustainability of your family business.

May 14, 2024 Capital Budgeting Special Topics

Review of Key Economic Indicators for Family Businesses

This week we look at recent economic data and the implications of this data regarding the Fed’s upcoming monetary policy actions.  GDP growth in the U.S. economy slowed to 1.6% in the first quarter of 2024, lagging measures of 4.9% and 3.4% recorded in the final two quarters of 2023.  Leading economic indicators point to a further slowdown on the horizon in 2024, as The Conference Board’s Leading Economic Index, fell 2.2% in the six months ended March 2024.  We take a brief look at these trends and more. 

May 7, 2024 Capital Budgeting Taxes

The Case for Research and Development

A Case Study of Innovation and Taxes

Consistent investment in research and development is at the heart of many family business breakthroughs. Like any investment, R&D spending consumes family capital today in the expectation of generating more cash flow in the future, and for many years, companies deducted R&D costs from taxable income as those dollars were spent. However, a little-heralded provision of the Tax Cut & Jobs Act of 2017 upended the status quo for tax treatment of R&D expenditures. Taxpayers are now required to capitalize R&D costs, deducting them from taxable income over a period of five years rather than in the period the costs were incurred. With this in mind, we present a brief case study to help family businesses visualize this change and better prepare for capital budgeting decisions in the future.

May 1, 2024 Capital Budgeting

Your Family Business Is on the Clock – Are You Ready?

The 2024 NFL Draft occurred this past weekend, and while a family business director might not be sitting 8th on the clock in next year’s NFL Draft, there are certainly draft day themes that can be applied within your family business. NFL Draft “assets” may look different than those of the family business, but the themes of considering shareholder & owner preferences, allocating capital, and preparing for next-generation leadership mirror many of the responsibilities of a family business director. Read more in this week’s post.

April 23, 2024 Special Topics

Navigating Change in the Family Business

2024 Transitions Conference Recap

We’re back from Family Business Magazine’s 2024 Transitions Spring Conference, held this year in Tampa, Florida. The theme of this year’s conference was change and transition in your family business. The conference speakers and sessions struck a good balance of effectively facilitating organizational change while maintaining your family’s values and identity. We discuss three transitional forces facing you and your family business, inspired by the conversations we had at the conference.

April 9, 2024 Performance Measurement Shareholder Engagement

The Green Jacket Guide to Family Business Surveys

What Can We Learn from the Masters?

It is that time of year. The azaleas are blooming at Augusta National Golf Club and nearly one hundred golfers are gearing up for their shot at a green jacket in the 88th Masters Tournament.

What the Masters has developed in terms of interest and legacy lies in the unique traditions as well as the initiatives taken on by the Masters Tournament Foundation. The Masters Tournament Foundation’s primary purpose is to support, develop, and globally expand the game of golf through clear messaging, marketing, and communications across generations of golfers. Their commitment to creating a more accessible and welcoming golf community is critical to the longevity of the sport itself.

There is no tournament in all of sports more desirable to attend than the Masters. From the iconic pimento cheese sandwich and Azalea cocktail to the 9-hole Wednesday Par-3 tournament, it is truly one-of-a-kind. Similarly, family businesses are unique with traditions of their own that drive shareholder engagement. A shareholder base that is involved and passionate is a critical factor in building a sustainable and prosperous family business. But as family business directors know…

April 1, 2024 M&A

Home Depot Announces SRS Distribution Acquisition

An M&A Case Study

The Fed’s efforts to rein in inflation from early 2022 through the middle of 2023 also reined in middle market M&A activity.  Middle market transaction data provider GF Data reported data on 269 sub-$500 million acquisitions by private equity firms in 2023, compared to 464 such deals in 2021 (a 42% decrease).  Some of those “missing” deals may never happen, but we suspect most were simply deferred, leading to more robust transaction volumes as buyers and sellers acclimate to the new “normal” interest rate environment.

Home Depot’s recent announcement that it was acquiring roofing and construction material distributor SRS Distribution may signal the return of more robust deal activity.  Even if your family business has nothing to do with construction materials, there is plenty to note in this deal.

March 26, 2024 M&A Valuation

Your Family Business Will Transact: Are You Ready?

Approximately 75% of business owners regret selling their business within the first year following the sale, according to a new report. Have you checked in on your succession plan? How does your business’s succession and exit plan stack up? We explore a new report and why planning ahead is crucial to ensuring your future business transition goes as smoothly as possible.

March 18, 2024 Special Topics Taxes

Now Could Be a Great Time to Transfer Stock to Heirs

Rising inflation and higher interest rates have significantly affected business values and the broader economy, with some industries managing to navigate the higher-rate environment while others struggle. The Federal Reserve has indicated potential rate cuts later this year, which could have widespread implications for businesses and the economy. Now is the time to explore favorable opportunities for transferring business value to future generations and consult with estate planning advisors.

March 11, 2024 M&A Special Topics

5 Reasons Sellers Need a Quality of Earnings Report

In a recovering M&A market, sellers must be prepared to present their value proposition effectively. A Quality of Earnings (QofE) report is essential for sellers to maximize their asset’s value and navigate the negotiation process with confidence. The report not only helps in presenting adjusted and future sustainable profitability but also equips sellers with crucial information for clear decision-making, fostering transparency, and ensuring a favorable transaction outcome.

March 5, 2024 Taxes

The Times They Are A-Changin’

The sunsetting provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire after 2025. Family business directors must be aware of these changes, especially the Qualified Business Income (QBI) deduction and federal gift and estate tax exemption amounts. Expiration of the QBI deduction would increase taxes for pass-through entities, while the reduction of estate tax exemptions would significantly impact family wealth planning. Proactive planning and consultation with tax professionals are essential to ensure the continued success of family businesses.

February 26, 2024 Capital Budgeting Taxes

Capital Planning and IRS Section 6166

Successful enterprising families are careful and deliberate consumers of family capital. In specific circumstances, Section 6166 of the Internal Revenue Code can provide a capital planning alternative family business directors should consider when facing large contingent liabilities for shareholder estate tax obligations.

February 20, 2024 M&A

Ownership Succession and the NFL

The NFL has functioned as a family business incubator of sorts throughout its decades of existence. While other major U.S. professional sports leagues have embraced private equity ownership in recent years, the NFL has held out in favor of the family-owned model. The introduction of private equity into the league (expected at next month’s league meetings) will have far-reaching effects, both positive and negative. In this week’s post, we look at the pros and cons of private equity ownership in NFL franchises and how, like the NFL, family business owners considering private equity investment should weigh the pros and the cons before bringing PE firms into ownership groups.

February 12, 2024 Capital Structure

Viva Diversification: The Vegas Transformation and Your Family Business

Las Vegas has transformed from the gambling-centric “Sin City” to a luxury entertainment destination. As the city’s revenue model shifted from primarily gaming to encompass live shows, fine dining, and global sporting events, it reflects a successful adaptation to changing market dynamics and consumer preferences. Vegas’ transformation is a compelling case study for family businesses considering diversification strategies, and provides a good example of strategic planning and investment in a future that honors past successes while exploring new opportunities.

February 7, 2024 Special Topics Valuation

A Matter of Life (Insurance) and Death

Life Insurance as a Funding Mechanism for Shareholder Buyouts

In the case of Connelly v. United States, a family-owned roofing and siding materials company, Crown C Supply Company, Inc., faces a complex legal and financial challenge following the death of one of its major shareholders. The dispute centers on whether life insurance proceeds should be included in the company’s equity value for buyout purposes, a decision with significant implications for the valuation of shares and the financial future of the company. This case, now headed to the Supreme Court, highlights the critical importance of clear buy-sell agreements and the role of life insurance in shareholder buyouts, offering essential insights for family businesses navigating similar transitions.

January 29, 2024 M&A Special Topics

5 Reasons Buyers Need a Quality of Earnings Report

In 2024, as the prospect of Fed rate cuts begins to attract buyers back into the market after a period of caution in 2022 and 2023, the importance of thorough due diligence cannot be overstated. Family businesses, in particular, should pay close attention to the crucial role that a Quality of Earnings (“QofE”) report can play in their acquisition decisions. From uncovering sustainable earnings and identifying cost-saving potentials to understanding revenue synergies and assessing capital needs, a comprehensive QofE report emerges as an indispensable tool for family business directors aiming to navigate the complexities of acquisitions with confidence and strategic insight.

January 23, 2024

Ownership & Succession Planning in 2024

The Green Bay Packers’ approach to succession planning, exemplified by their strategic transitions from Brett Favre to Aaron Rodgers and then to Jordan Love, serves as a valuable lesson for family businesses in 2024. Key aspects of effective succession planning include transparent communication among shareholders to ensure decisions are in tune with both the business’s and the family’s needs, and flexibility for unforeseen events, allowing the family business to maintain success and longevity.

January 16, 2024 Capital Structure

How Does Your Family Business Think About Philanthropy?

Martin Luther King Jr. Day is often used by companies, including family businesses, to focus on giving back and charitable activities. How your family business views itself — as a source of wealth, lifestyle, or growth — significantly influences its approach to philanthropy and charitable giving. In this week’s post, we highlight some considerations for your family board regarding philanthropy and your family business.

January 8, 2024 M&A

A 2024 M&A Update

In this week’s post, we take a look at the year that was in middle market M&A and offer a few thoughts regarding the potential for elevated deal activity in 2024. Despite depressed levels of deal activity in the middle market in 2023, there are reasons to be optimistic for increased levels of dealmaking in 2024. We’ll cover that and more in this week’s post.

January 2, 2024 M&A

5 Questions for Family Business Directors in 2024

In 2023, family businesses experienced varying degrees of success, prompting a focus on key strategies for 2024. These strategies include assessing the economic outlook, understanding customer needs, maintaining and growing profit margins, revising M&A strategies, and adapting to emerging trends like generative artificial intelligence. Directors are encouraged to proactively address these areas to ensure 2024 is a successful year for their family businesses.

November 27, 2023 Capital Budgeting Capital Structure Shareholder Engagement

Navigating the Buffet of Investment Options

A Guide for Family Businesses

This week’s blog centers around the challenges of asset allocation and investment decisions for family businesses, touching upon the importance of understanding a family’s appetite for risk and growth. We explore how the meaning assigned to the family business influences investment choices options and the necessity of balancing risk and expected returns. While there may not be a perfect answer for deciding how to invest, reevaluating what your family business needs and what it means to you will help you decide more wisely.