Corporate Finance & Planning Insights for Multi-Generational Family Businesses
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.
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…
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The Inflation Reduction Act allocates an $80 billion budget increase for the IRS, significantly boosting enforcement capabilities, particularly targeting complex tax filings and high-dollar noncompliance. Recent data indicate a stable trend in gift and estate tax audits, but the increased focus on wealthier individuals hints at a potential shift, urging family businesses and estate planners to brace for more scrutiny. As the landscape evolves, selecting a seasoned business appraiser becomes crucial for family businesses, underscoring the importance of expertise, early involvement in tax planning, and high expectations for appraisal accuracy and thoroughness.
Revenue growth and profitability are critical measures for the health of any family business, but by themselves, they tell only half of the story. As a family business director, you need the whole story. We’re not aware if Paul Harvey was a financial analyst, but if he were, we suspect his favorite performance metric would have been return on invested capital (ROIC), because it tells you the Rest of the Story.
There is an urgency to consider a range of estate tax strategy options in order to maximize gifting family wealth rather than family drama. The options range from straightforward gifts to heirs, accelerated gifting, use of irrevocable trusts, and other estate freeze tactics to lock in assets at current value and transfer future appreciation to heirs without triggering additional taxes. Why? The current basic exclusion amount ($12.92 million per individual) is due to sunset to its pre-TCJA level of $5 million, as adjusted for inflation, at the end of 2025. Tax planners expect a spike in estate planning transactions between now and then. Don’t be caught unprepared. Read more in this week’s post.
Private equity and institutional investors have been increasingly targeting family-owned businesses for potential acquisition. Recent industry data shows that smaller deals account for over 61% of all private equity transactions in the first quarter of 2023, and founder-owned business purchases, especially those valued under $100 million, are rising. In this week’s post, we look at some of the pros and cons of private equity investment in your family business.
Everyone agrees that communication promotes positive shareholder engagement, but what does it look like to communicate financial results effectively? In this week’s blog we introduce a whitepaper that offers practical suggestions for presenting key financial data in ways that family shareholders find useful.
The contrasting fates of shoe brands Hoka and Allbirds in recent years have provided a couple important lessons for family business directors. As part of its growth strategy, Hoka harnessed the value of scarcity. Allbirds, on the other hand, stumbled by losing sight of its core customer in the race to pursue continued topline growth. In this post, we review these contrasting narratives to help family business directors evaluate their own growth strategies.
As the U.S. enters another earnings season with anticipated profit drops, family businesses are encouraged to leverage these reporting periods for enhanced internal communication and strategic planning. Unlike public companies focusing on quarterly results, family businesses prioritize long-term decision making, but can still improve shareholder relations by consistent, contextual, and future-oriented reporting. Family businesses should identify if they are in a “planting” or “harvesting” phase, as it may significantly influence their growth strategy and investment decisions.
