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Special Topics

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August 20, 2024 Performance Measurement Planning & Strategy

Review of Key Economic Indicators for Family Businesses

Coming off a run of economic data releases in the last few weeks, we take a look at the numbers and some of their implications for the broader economy in this week’s post. GDP growth in the U.S. economy measured 2.8% in the second quarter of 2024, outpacing growth of 1.4% in the first quarter. Following persistently elevated measures in the first quarter, recent inflation readings have cooled. The following sections provide a brief look at these economic trends and their implications, sourced from Mercer Capital’s National Economic Review.

July 30, 2024 Planning & Strategy

Real Estate and the Family Business

As the pandemic recedes further into the rearview mirror, long-term business consequences continue to reverberate through the economy.  In addition to recalibrating expectations among domestic manufacturers, foreclosures on distressed commercial real estate are accelerating.  Since enterprising families often accumulate significant real estate holdings, the lingering pandemic-induced weakness in real estate values may encourage families to evaluate their real estate strategies. In this week’s post, we discuss three broad real estate strategies for families owning and operating businesses.

July 22, 2024 Planning & Strategy

The Patience to Prevail

What Can Family Businesses Learn from the Open Championship?

Current economic uncertainties may have family businesses feeling more like they’re playing in an Open Championship than a routine PGA/LIV tour event.  While there are many ways to steer your family business through uneven times, these lessons are a good starting point.

July 17, 2024 Planning & Strategy

Mild, Medium, or Hot

Will the Fed Cut Interest Rates This Year?

Last week, the consumer-price index decreased slightly from May, resulting in a year-over-year inflation measure of 3%. And as earnings season approaches, the broader stock market is eyeing new records. Last year, we discussed how family business leaders could use earnings season as an opportunity to discuss strategy and goals with their family board. Today, we focus on earnings season as a broader indication of inflation and investor sentiment in the months to come.

June 24, 2024 M&A Planning & Strategy

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 Planning & Strategy

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 14, 2024 Capital Budgeting Planning & Strategy

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. 

April 23, 2024 Planning & Strategy

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.

March 18, 2024 Planning & Strategy 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 Planning & Strategy

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.

February 7, 2024 Planning & Strategy 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 Planning & Strategy

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.

December 4, 2023

Memorable Mungerisms

As a tribute to the late Charlie Munger, we reflect on his unique perspectives on investment strategies, highlighting his candid views on cryptocurrencies, diversification, and reliance on projections. We explore a few quotes that showcase Munger’s legacy in rational investing and his influential philosophies that continue to shape prudent financial decision-making.

November 21, 2023

Review of Key Economic Indicators for Family Businesses

In the latest economic update, the U.S. GDP showed a resilient 4.9% growth in Q3 2023, surpassing expectations and driven primarily by personal consumption and exports. However, leading indicators suggest a potential slowdown, with economists predicting reduced GDP growth in the upcoming quarters. This week’s post delves into these trends, inflation rates, and the Federal Reserve’s monetary policies, offering useful insights for family businesses.

October 30, 2023

The Scariest Thing That Faces Family Business Directors

Happy Halloween!  This week, we have four frightening guests who share their most terror-inducing family business challenges.

October 3, 2023 Planning & Strategy

Why ROIC Matters for Family Business Directors

New Video Released on Family Business On Demand Resource Center

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.

August 29, 2023

Review of Key Economic Indicators for Family Businesses

The U.S. economy defied expectations by growing at an annualized rate of 2.4% in the second quarter of 2023, outperforming consensus estimates and showing resilience against the Federal Reserve’s ongoing rate hikes. While inflation rates have moderately stabilized, economists forecast a potential slowdown in GDP growth for the upcoming quarters. Explore this delicate economic balancing act, including insights from the Fed’s latest meetings and how these developments could influence both consumer and investor behavior.

July 5, 2023

What We’ve Been Reading

This week we’ve compiled a brief reading list of items we’ve found to be interesting and informative in the past couple of weeks.  Think of it as your Family Business Director summer reading list. 

June 27, 2023

Economic Indicators for Family Businesses

New Video Released on Family Business On Demand Resource Center

In this video, Tripp Crews discusses a few key economic indicators that family business owners and directors would be well-served to keep an eye on as we continue to navigate through a turbulent macroeconomic environment. Having a working knowledge of these indicators can help inform decision-making processes for owners and directors both in the office and in the board room.

June 15, 2023

Just Released: 2023 Benchmarking Guide for Family Business Directors

The business landscape of 2022 was like a competitive football game, where the repercussions of inflation, rising interest rates, and global conflicts felt like a stonewall defense. Still, businesses found ways to hold their ground, providing key takeaways for family businesses, as dissected in our comprehensive 2023 Benchmarking Guide. Our guide helps family business directors understand how to make important financial decisions, like setting dividend policies, making investments, and arranging financing, while analyzing the shifts in capital allocation amid the changing financial climate.

June 5, 2023 Valuation

Tax Court Sides with Family Business in Cecil

In this week’s post, we analyze the recent Tax Court case, Cecil v. Commissioner. A key issue in the case was the role of appreciated corporate assets in determining the fair market value of a minority interest in an operating company. The Cecil family has owned and operated the Biltmore mansion in Ashville, North Carolina for decades, and the case highlights the intersection of the asset-based, income, and market approaches to valuation, and serves as an important reminder to families evaluating their own estate plans in light of the approaching sunset provisions in the Tax Cut and Jobs Act of 2017.

May 8, 2023 Planning & Strategy Shareholder Engagement

A Lifelong Succession Plan

Lessons from the Arnault Family

Bernard Arnault, founder of LVMH and the world’s wealthiest person, is meticulously planning the future of his luxury empire. Through a blend of creativity and pragmatism, Arnault has built LVMH into a global powerhouse while maintaining its status as a family business. Learn how the “Wolf in Cashmere” has prepared his children for leadership roles, and the Arnault family’s approach to long-term planning, stewardship, and collaboration.

May 1, 2023 Planning & Strategy Shareholder Engagement

Corporate Finance in 5 Minutes

New Video Released on Family Business On Demand Resource Center

Looking to unlock the secrets of corporate finance in just 5 minutes? This concise and engaging video will demystify the world of finance, providing you with an essential understanding of key concepts and strategies. Perfect for aspiring business leaders, entrepreneurs, or anyone looking to expand their knowledge, this video will give you the background you need to understand financial business decisions made by your company’s board and directors.

April 25, 2023 Shareholder Engagement

The New 3 Circles of Family Business and How to Be a Good Owner

Recap of the Transitions 2023 Conference

Mercer Capital sponsored and attended last week’s Transitions conference, where enterprising families came together to discuss the most critical topics for family business success. This year’s event revolved around the “3 New Circles” – engagement, succession, and governance – and tackled the essential questions family business leaders need to address. In addition, our breakout session, How to Be a Good Owner, presented 5 questions associated with developing good owners for your family business. How would you answer these questions?