Sales of Family Businesses Expected to Take Off

Financial advisors are expecting an upswing in the sale of businesses as their Baby Boomer owners retire and do not pass the business to their children. Selling to another company or private investor group gives owners money they could not save for retirement. Sales also typically take place because there was no succession plan in place, they say. “One of the reasons they (the family members) are selling to a third party is they want a larger cash infusion,” said Susan Laine, the chief executive with Structured Financial Partners in Woodland Hills. Industry observers attribute the impending surge in businesses sales to the Baby Boomer generation reaching retirement age. The AARP reported that 76 million boomers are heading into their retirement years, with the oldest turning 65 years old in 2011. “Based on the demographics there are going to be many more transition deals in the next 10 to 15 years,” said Lloyd Steier, a professor at the University of Alberta’s School of Business and a board member of the Family Firm Institute. Industry professionals say when a family business goes up for sale there are a number of factors behind that decision. One is the next generation’s lack of interest in taking over; another is that parents don’t believe the children are up to the task. A lack of succession planning also plays into what will happen with a family business, said Chris Bandouveris, a principal with Counterpoint M&A Advisors in Woodland Hills. “It is a hardship (for the parents) if they put all their money back into the business and have nothing in their savings or 401(k),” Bandouveris said. In 2010, PricewaterhouseCoopers (PwC) surveyed more than 1,600 executives of family businesses in 35 countries, including the U.S. About 35 percent of the survey’s respondents said they expected their company to change hands in one to five years. Of the owners who said they were expecting their family business will undergo an ownership change, 53 percent responded they would pass it along to their children and 41 percent expected to sell to another company or to a private equity firm. Laine said there are some circumstances that crop up in family business buyouts that are unique, when compared with buyouts that do not involve families. For example, if a group of employees wants to buy the family business, then they likely would not get the full purchase price available, Laine said. That kind of scenario most likely would keep the former owners tied to the success of the company, she said. The PwC survey found there’s reluctance on the part of entrepreneurs to give up control of the business they founded and grew. “The passion that drives them to set up the companies in the first place prevents them from stepping back from the helm,” the survey concluded. Often when a company wants to grow, the quickest way is through an acquisition. With a family business, however, there is more to consider than just the financials, Steier said. An entrepreneur who built a business over time has an emotional attachment to it and wants to see that legacy protected, he said. “Even if it is not a family member buying, they want to make sure the employees are taken care of when negotiating a deal,” Steier said. “It is not just about the cash.”