Corporate Finance & Planning Insights for Multi-Generational Family Businesses
We recently attended a family business symposium where owners, board members, and consultants gathered to share strategies and insights. During one of the presentations, we saw a graphic that piqued our interest. It was a simple triangle that provides a framework for developing and managing an ownership strategy in a privately held family business. We offer some thoughts on developing a strategy through the lens of the graphic in this week’s post.
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.
Since 1905, Boar’s Head has built a multigenerational family enterprise selling deli meats, cheeses, and other delicious sundries. In the last several decades, the company has publicly handled various product contamination and recall situations while simultaneously dealing with internal ownership conflicts and legal battles behind closed doors. It is hard to imagine the founders of Boar’s Head envisioned this sort of conflict-ridden path for their family business. While avoiding shareholder conflict is never guaranteed, family business directors can add an additional layer of protection to their family legacy and long-term wealth through focused succession planning. In this week’s post, we address a few things to consider when developing your family business succession plan.
Fed Chair Jerome Powell addressed the National Association of Business Economists conference in Nashville last week, and we — despite not being trained economists — were on hand. In this week’s post, we provide a brief summary of our impressions and a few thoughts for family business directors.
Communication determines the success of any relationship, and the relationships among shareholders of multi-generation family businesses are no exception. As the business and family grow, shareholder relationships become more complicated, and formal communication becomes more important. While families nearing a generational transfer have some very specific challenges, effective communication is essential regardless of where the family business is in the corporate life cycle.
With the release of Chris Mercer’s new book, we’ve got buy-sell agreements top of mind, and you should, too. Buy-sell agreements don’t matter until they do. When written well and understood by all the parties, buy-sell agreements can minimize headaches when a family business hits one of life’s inevitable potholes. But far too many are written poorly and/or misunderstood. Directors are always eager to discuss best practices for buy-sell agreements. In this week’s post we revisit a blog where we talk to Chris and ask, “Is there a ticking time bomb lurking in your family business?”
We are excited to share the release of Z. Christopher Mercer’s latest book, Buy-Sell Agreements: Valuation Handbook for Attorneys published by the American Bar Association. This week, we share an excerpt from the book and what you can expect to find in the full copy.
Since 2017, the Nordstrom family has made multiple attempts to take the company private but has been rebuffed by the board. Nordstrom was in the news again this week, with the company disclosing that the members of the Nordstrom family were once again offering to take the company private, this time $23 per share (compared to $50 share six years ago). The Nordstrom board has formed an independent committee to evaluate the offer. In this week’s post, we identify three lessons for family business directors from the unfolding saga.
The current economic state is driving operating costs higher for many businesses and eating into profits. Employers are combating this by reevaluating their hiring strategies, which include resetting labor costs and reducing starting salaries. Margin analysis can be a beneficial tool for evaluating performance, and becoming familiar with the typical margins of your family business will provide a touchpoint for identifying opportunities to preserve and grow profits for your family business. Since ‘typical’ margins vary from industry to industry, being able to benchmark to similar companies can give family businesses a better idea of where they stack up.
We’ve recently observed private equity investors learning a lesson about liquidity risk, which family shareholders have always known. A couple of weeks ago, the Wall Street Journal noted that — amid a sluggish M&A market — PE-backed companies were increasingly turning to lenders to fund so-called dividend recapitalizations in a bid to provide liquidity to impatient investors. This week, we explore a PE strategy that might be worth considering for some family businesses: divided recapitalization.
