Corporate Finance & Planning Insights for Multi-Generational Family Businesses
As a family business director, many decisions you’ll make in 2025 will require assessing the value of the company’s shares, a particular business segment, or a potential acquisition target. What should you and your fellow directors know about valuation? In our experience, getting back to the basics with these six principles can be worthwhile.
In last week’s post, we reviewed what EBITDA is and why not all EBITDA is created equal. In case you missed it, we ended that post with the following statement: “…improving EBITDA margins can have a multiplicative impact on your family business’s value by both providing more EBITDA and justifying a higher multiple.” So, is it really true that a higher EBITDA margin will also bring a higher multiple, or were we just getting carried away with our own thesis? For this week’s post, we pull some market data to test our assertion.
In the world of family-owned and other private businesses, most everyone looks to EBITDA (earnings before interest, taxes, depreciation, and amortization) as an indicator of financial performance. Legendary investor Warren Buffett, however, holds a long-standing grudge against EBITDA. Here at Family Business Director, we believe there is a time and a place for EBITDA in financial analysis, but Mr. Buffett does have a point — some EBITDA is better than others. But why? We explore EBITDA and why it matters for family business directors in this week’s post.
Fresh off the Super Bowl with no more football in sight, it’s time to pick up that book collecting dust on the shelf. To help ease you back into the routine of things as we head into the dog days of winter, here’s a quick roundup of what we have been reading.
Over the weekend, President Donald Trump signed an executive order that imposed an additional 25% tariff on Canadian and Mexican imports and an additional 10% tariff on imports from China. As the socio-political atmosphere is continuously changing, it is critical for family business directors to keep a pulse on current developments and understand the different implications that may impact or change their industry moving forward. Maintaining an adaptive forecast is one of the best practices for being able to pivot during unpredictable times. As family business managers and directors re-evaluate their projections, we revisit some of the mental biases that can potentially skew forecasts.
Family Business Director attended the 59th Annual Heckerling Institute on Estate Planning earlier this month. In one of the standout sessions, we reviewed purpose trusts and how companies like Patagonia are employing them for succession planning. Even if your family business is unlikely to follow suit, Patagonia’s novel business succession strategy provides important lessons and reminders for family directors. Your family business may not have a purpose as lofty as “protecting the planet,” but you and your shareholders will benefit if the purpose is clearly articulated, protected by thoughtful governance structures, and visible through disciplined and transparent reporting.
Middle market M&A activity in the third quarter of 2024 showed signs of the “summer slowdown,” as fewer PE deals were reported compared to the first two quarters of the year. However, as deal activity begins to revert to pre-2023 levels, the outlook for 2025 points to signs of optimism, while some hurdles remain on the horizon. In this week’s post, we look back at middle market (defined as total enterprise value of $100 – $500 million) transaction activity in 2024 and look ahead to what may be on the horizon for middle market M&A in 2025.
Capital budgeting tools are ideal for answering the question: Is the proposed capital project financially feasible? Too often, however, we see these tools being used to answer what seems to be a related question, but one that the tools are simply not designed to answer: Should we undertake the proposed capital project? The first question opens the door to the second, but the tools of capital budgeting — no matter how sophisticated or quantitatively precise — cannot answer the second. To answer the second question, family business directors need to consider three qualitative questions identified in this post.
What happens when family dynamics collide with billion-dollar stakes? The unfolding legal battle over control of the San Diego Padres serves as a reminder of the importance of clear succession planning. Whether your family business is a sports franchise or something closer to home, having a plan in place can mean the difference between harmony and heartbreak. Here’s what you need to know to safeguard your family business.
Cash-strapped early-stage companies have long relied on equity-based compensation to attract, motivate, and retain employees. But for a variety of reasons, the IPO is no longer the goal line for founders, many of whom are now content to remain private far longer than previously expected. While founders may be content with their illiquid billions, most employee-shareholders want to convert at least some of their illiquid thousands to spendable cash. Family businesses that identify creative strategies for satisfying shareholder liquidity preferences are less likely to fall victim to shareholder discontent that can derail the larger family’s desire to remain independent and private. While not providing a perfect roadmap, strategies devised by early-stage companies for satisfying the liquidity needs of their employee-shareholders may provide some timely inspiration for family business directors.
