insights
Succession Buyouts as a route to succession in family companies
Planning for exit and succession can be difficult in any business, but in family businesses there are additional factors to consider.
It is estimated that there are currently over 5 million family-owned businesses in the UK for which, at some point, the owners will need to consider their succession planning.
Here’s all you need to know about successfully transferring ownership of a family business back to your family, rather than having it sold to an external party.
A Family Buyout is where the members of a family business come together to achieve a majority stock in their company when it comes to succession, rather than letting it be transferred out to another party unrelated to the family.
The main difference between a Family Buyout and other kinds of acquisition, in the case of a FAMBO, the buyout is completed only by close family members of the owner, not by the management or any external party.
It is estimated that there are currently over 5 million family-owned businesses in the UK for which, at some point, the owners will need to consider their succession planning. Keeping a business within the family can help:
Going through a FAMBO can cause a lot of tension between family members, so having a third party as a mediator can make the whole process a lot smoother. Our expert advisers are here to take you through every step of your Family Buyout. Call us on 01223 728222 or get in touch here.
Here are the key things to keep in mind when attempting to acquire ownership of your family business. Our expert advisers can guide you through each of these.
Family Buyouts are fundamentally different from third-party transactions because emotional relationships, history and identity are intertwined with the business itself. For a Buyer, managing these dynamics is as critical as valuation or financing to avoid conflict in the future.
When it comes to the process of buying out your family business, emotions can get in the way of financial logic. Emotional attachments can have a big impact on understandings of fairness, value and entitlement.
Putting these emotions aside can allow for proper communication and agreement. Our advisers can act as a third party during the Family Buyout process, helping to depersonalise discussions around finances, valuation and each member’s position within the company.
Ensuring valuation and price are fair and transparent is central to a successful Family Buyout, particularly from the buyer’s perspective. Discussions around finances must remain objective and commercially, while recognising each family member will have a different idea of what’s “fair”.
Third party valuations can help bring an objective voice into the conversation and reduce the chance of bias or emotion blurring discussions of finance and valuation. Transparency around assumptions, forecasts, and comparable benchmarks is essential, particularly where the buyer has deeper operational knowledge than other family shareholders.
When it comes to a family business, sellers may ask for a premium price to reflect their legacy and emotional investment in the company. Flexible payment structures, such as deferred consideration, can help ease the seller’s mind when settling on a value that is good for the company’s future success.
Our advisers are experts when it comes to negotiating value and acquisition processes and can help bring a neutral mediating voice to the discussion.
There are various different financing strategies a Buyer can pursue in order to complete the acquisition of their family business:
Which of these strategies you choose to pursue as a Buyer will depend on your finances relative to the cost of the Buyout, how much debt you are willing to take on when taking over the business and, in the case of private equity, how much stake in the company you may be willing to allow.
Knowing which financing strategy to use can be intimidating. But our advisers are here to help you through the process. Call us on 01223 728222 or get in touch here.
If you are looking to sell your business or looking to purchase one please do not hesitate to contact Philip Olagunju (philip@pemcf.com) or Lake Falconer (lake@pemcf.com) and they will be happy to discuss your needs.
When completing a Family Buyout, it is crucial to agree on who will be taking over leadership of the company, what form that leadership will take and what roles each involved family member will take on once the buyout is complete.
This not only maintains stability within the company, but helps to avoid conflict within the family as well, ensuring that the business can continue on peacefully into the foreseeable future.
Our expert advisers can act as a mediating third party to ensure every member of the Family Buyout has their say and a fair compromise can be struck.
To help ensure that an FAMBO results in a successful sale and a stronger family unit there are several actions that both owners and family members can undertake:
If you are looking to transfer your family business to the next generation or are looking to secure your family legacy, get in touch today. We will be happy to discuss your needs.