Family Business Director

Corporate Finance & Planning Insights for Multi-Generational Family Businesses

Planning & Strategy Special Topics

Down, But Not Necessarily Out

In this week’s post, we attempt to divert your attention from interest rates and banking crises by looking at recent private company transaction multiples and some implications of these measures.  As detailed in the latest edition of “Mercer Capital’s Middle Market Transaction Update,” transaction activity, both in terms of deal values and volume, ended 2022 with a thud, as expected.  Multiples on deals across all size tranches in the middle market (which we define as deals with total enterprise value between $10 million and $250 million) fell to close the year—implying a broad decline in private company valuations in that time.  However, asset prices across most classes were susceptible to these declines, creating opportunities for prudent family business managers and directors to evaluate potential transactions in a “down” market. Family business owners should not bury their heads in the sand regarding the current environment–one of the most important facets of a successful transaction is that sellers have reasonable and informed expectations of what their business may command in the market. These reasonable and informed expectations are difficult to develop without a solid understanding of current market conditions for privately held businesses. 

Planning & Strategy Special Topics

Unpacking the Corporate Transparency Act

On January 1, 2021, Congress enacted the Corporate Transparency Act (the “CTA”) as part of the Anti-Money Laundering Act of 2020. The main purpose of the Corporate Transparency Act is to protect the United States financial system from being used for money laundering and other illicit activities. Effective January 1, 2024, the CTA requires a range of different entities to file a report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). The CTA regulations are written so broadly that nearly every family business in the U.S. will be swept under this new law.

So, what does that mean for business owners? In this week’s post, we answer the main questions stemming from the Final Reporting Rule of the Corporate Transparency Act that will most likely affect you and your family business. 

Planning & Strategy Special Topics

SVB and Three Family Business Lessons

California (Bank) Dreamin’

Silicon Valley Bank (SVB) imploded last week in a “gradually, then suddenly”’ fashion. Regulators stepped in quickly and aggressively, promising to back up deposits at the bank of the VC world and stave off a contagion of fear at other banks. And while the body was still warm, politicians stepped in and dusted off their 2008 talking point notes.

This post from Family Business Director aims to highlight three relevant family business lessons from the failure of SVB: diversification, succession planning, and keeping a long-term focus.

Planning & Strategy Taxes

A Little Planning—A Lot of Tax Savings

Charitable Giving Prior to a Business Sale

Over the last few weeks, I’ve had both professional and personal conversations with family business owners who utilized a business transaction to maximize their charitable giving and minimize their tax burden. While taxes are not generally the primary driver in making large gifts to charity, a little foresight and planning can create flexibility in your giving, yield more bang for your buck, and result in fewer taxes owed to Uncle Sam. In this week’s post, we discuss the tax strategy that charitable family business owners should keep in mind when selling their business.

Capital Structure M&A Planning & Strategy

Out to the Public and Back Again

The Weber Grill Case Study

A recent Wall Street Journal article highlighted the trend of newly-public companies reverting back to private ownership after a very short time in public hands.  Among the boomerang IPOs mentioned in the article was that of backyard grill maker Weber.  With the advent of grilling season, we were curious about Weber’s experience in the public markets and any lessons that family business directors might be able to draw from the tale. Among the lessons available for family business directors from the tale, we will focus on two for this post.

Planning & Strategy Special Topics

Review of Key Economic Indicators for Family Businesses

In this week’s Family Business Director post, we look at a few key macroeconomic trends that developed in the fourth quarter of 2022 and early 2023 and their impact on family businesses. In the final quarter of 2022, the effects of the Fed’s rate hiking campaign began to permeate throughout the economy, particularly in inflation readings. Still, GDP outpaced consensus estimates, and U.S. equity markets reacted positively to signs of slowing inflation in October and November.  The Fed continued to raise the benchmark rate with a 75-basis point increase in November and a 50-basis point increase in December.  This post provides a brief look at these trends. 

Planning & Strategy Special Topics

From Unfriended to Best Friends Again?

Attaining Efficiency Through Restructuring

Facebook, now known as Meta Platforms (NASDAQ: META), released fourth-quarter earnings and full-year 2022 results earlier this month.  The stock is currently trading at its highest level in the last six months, albeit still at relatively low implied valuation multiples. This comes after a notably tough year for Facebook, as its stock fell 64% last year due to heightened competition from TikTok and a slump in the digital ad market.

So, what changed?  The two main changes for this significant increase are cost cuts and the announcement of a $40 billion increase in their share repurchase authorization.  While Meta previously taught us about long-term planning and plant/harvest decisions, Facebook’s belt-tightening and share repurchase plan bring up another few lessons on forecasting and share repurchasing, which we revisit in this blog.

Planning & Strategy Valuation

6 Valuation Principles You Should Know

New Video Released on Family Business On Demand Resource Center

Family business directors and shareholders do not need to be valuation experts.  However, there are six basic valuation principles that can help directors and shareholders make better long-term financial decisions for their family businesses.  In this video, we identify and explain these six principles, which are great additions to your family business toolbox.

Shareholder Engagement

Should You Conduct a Shareholder Survey?

Five Reasons Why It's a Good Idea

While private companies aren’t provided the constant, real-time feedback in terms of shareholder value afforded to public companies, ensuring that board, management, and shareholder incentives and preferences in privately held businesses are aligned is one step towards potentially maximizing shareholder value.  A shareholder survey can provide feedback to boards and management teams to avoid situations like the one Salesforce is currently facing, which finds itself amidst a potential shareholder-driven board takeover.  Since private company managers know precisely who their shareholders are, shouldn’t the characteristics and preferences of these shareholders be considered in the corporate decision-making process?  Absent these considerations, any attempts to “maximize shareholder value” are almost always destined to fail.  This week’s post outlines a few reasons why boards and management teams should consider a shareholder survey as part of their strategy to keep the incentives of all a company’s stakeholders aligned.   

Planning & Strategy

The 84 Lumber King

Succession Planning and How to Find Your Next Leader

84 Lumber is a family-owned private company. It operates more than 260 stores, component manufacturing plants, custom door shops, custom millwork shops, and engineered wood product centers in 35 states. Joseph A. Hardy III, the founder of 84 Lumber, lived an interesting and flamboyant life. The business is run now by Hardy’s youngest daughter, Maggie Hardy, who serves as president. A Wall Street Journal article on Mr. Hardy detailed his life and, given his recent death, also reminded us about the “next man (or woman) up” dilemma for many businesses. Who will ultimately take the reigns—especially following a larger-than-life founder?

Consulting Services

Family Business Advisory Services

Mercer Capital provides financial education services and other strategic financial consulting to family businesses