Corporate Finance & Planning Insights for Multi-Generational Family Businesses
Regardless of the reason, significant shareholder redemptions are among the least understood corporate transactions. In this week’s post, we consider the economics of family shareholder redemptions from three perspectives: the selling shareholder, the family business, and the remaining shareholders.
What can family business directors do to ensure a successful succession plan for the next generation? In this post we offer three lessons. In our view, a B+ succession plan today is better than an A+ plan later. Starting the succession planning process now – understanding that it will evolve – should spur family business directors to actionable plans that will help everyone sleep better at night.
For family business directors, 2021 should be an opportune time to consider making an acquisition. General indications on valuation suggest that the private company M&A market has not been priced-up at anywhere near what has been seen in the public markets. While this difference may be caused by a public market over-valuation issue that is “corrected” in the short-term, it suggests that there could be positive momentum in private company valuations as the economy continues to move through subsequent stages of the post-pandemic recovery. A good M&A deal can be made even better with favorable financing, which should be available to many borrowers in the current environment. We can’t predict the future, but those who take a buyer’s view of the M&A market now might be rewarded with enhanced returns. With pent up demand and a high availability of capital, we anticipate a rise in M&A activity over the next year with the best valuations and financing deals likely favoring the early bidders.
Family Business Director is excited to be a sponsor of this week’s Transitions Spring 2021 conference produced by Family Business Magazine. The theme for the conference is “Building the Future Family Business.” The conference offers a wide range of sessions in support of that theme. Additionally, we are looking forward to leading a breakout session on Wednesday (12:10-12:50 EDT) on the role of diversification in the family business.
Atticus Frank, senior financial analyst, worked in his family’s business for nearly three years prior to returning to Mercer Capital and joining the team’s Family Business Advisory Group. In this post, he writes about the stressful introduction to his family’s business and the steps he took to foster a healthy relationship with the business.
Family business directors generally take the long view relative to their publicly traded counterparts, providing a reprieve to constant market updates and daily market volatility. Successful family businesses plan for the next generation, not just the next quarter. However, family businesses cannot simply put their heads down and ignore economic trends outside their family’s industry.
Our family business advisory practice is focused on three strategic financial questions that weigh on family business directors and can keep them awake at night: 1. What is the right dividend policy for our family business?, 2. What is the right family business capital structure?, and 3. What is the right asset mix for our family business?
How does someone align the goals of the family with their business? This post looks at a few practices I picked up in my family’s business, and ones we still practice.
Barring a change in the economic backdrop, as uncertain as it is, the availability of debt financing for most family businesses in 2021 is good. Further, the cost of credit will be low and most likely the terms will be lenient by historical standards.
EBITDA promotes comparability across firms by “normalizing” for structural features of how those companies are organized, financed, and assembled. This is best seen by considering the various adjustments to net income that are made to arrive at EBITDA.
