17 December 2021

The nuances of preparing a family business for sale/investment

Stuart Hatcher, Partner, and Lianne Baker, Knowledge Development Lawyer, both of our Corporate team, have written for eprivateclient on the nuances of preparing a family business for sale/investment.

The article, originally published by eprivateclient, is reproduced in full below.

One of the big challenges for a family business is reaching the point where it’s determined that the right thing to do is to sell the business.

Clearly, many family businesses aren’t in the market to sell and are true multi-generational dynasties, but others may find that the time has come to move on.

The decision to sell can be extremely difficult but once this hurdle has been overcome, an equally formidable problem is who to sell the business to and it is this last issue which many family businesses will not ever have considered.

Sometimes the starting point for such businesses may be the relatively simple task of deciding who they wouldn’t want to sell to – for example, a sale to a competitor or private equity may not feel the right “fit” (although for many, either of these can be a solution that works) or there are legacy aspirations with the ideal buyer having like-minded views about the long-term vision for the business.

Such aims are leading to an upsurge in the number of family businesses being sold to family offices and other private wealth funds, who are increasingly seen as alternative investors and buyers in the market.

As advisers, one of the questions we are often asked, particularly when a client is interested in non-traditional buyers such as family offices, is “how do we find the right buyer?” On that basis, we thought that it might be helpful to set out some of the factors and considerations that we think are important to take into account when making this decision: A. Identify the alternative buyers and sources of funds. Unlike the more traditional private equity industry and trade buyers, there isn’t an easy way to access and find family offices and wealth funds, primarily because there isn’t a real directory of family offices available and many are private by their very nature so will not advertise publicly. You will therefore need to speak to your advisers who have expertise in this space and as a result, have a good network and can access these types of entities. It’s important to use advisers who are experienced in the family office and private wealth sector and can make use of their connections to make the right introductions and ask pertinent questions regarding interest levels.

B. Remember to tell the story and explain the vision of the business, and emphasise the long-term opportunity. While private equity exit timelines will usually target five to seven years for a return, most family offices and wealth funds don’t have the same imperative to prove track records of return and are happy to hold businesses they like for the long(er) term.

C. Don’t be shy about highlighting the ESG credentials of the business. In our experience, many family businesses don’t appreciate that they are already ahead of the game on ESG. Often, such businesses have been around for a long time and as a consequence, have already thought about their long-term impact, which, in turn, has caused them to consider the business’ long-term sustainability. Too often in other sectors, the focus point is aimed at the figures, business growth (both historic and future) and market trends. However, buyers are increasingly desirous of understanding a wider range of metrics beyond the mere “numbers”. We are finding that many family businesses inherently cover the “S” in ESG without realising, contributing much to the wider community as part of their values and culture. It is all too easy to discount the merits of this and perhaps undersell this element as part of a sales package (it may seem glib, but often the name of the family and the standing in the community means that this is a major focus of a family business).

In our view it has never been a more open environment to sell a business to different, “non-traditional” interested buyers, but against that it has also never been as complicated to navigate and find the right buyer. However, with time and the right advisers, finding the right buyer is in no way an insurmountable challenge. It has also probably never been more apparent that many family businesses are already ahead of the game in some areas of particular interest to buyers, such as ESG, and this can facilitate the process of finding the right buyer, provided that the business’ ESG credentials are highlighted and form a key element of the sales process (rather than assuming that it is just “part of the business” or not something that an investor would be interested in).

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