Balancing Bloodlines – Exploring Family Succession in M&A

By Maciej Cieslak, PhD 

Managing Partner, Holon-Translink Corporate Finance Poland 

Succession is a multifaceted endeavour, requiring the fusion of two spheres that are traditionally kept distinct: family and business. Successions that are successful are relatively few – 30% in the first generation and a mere 10% in the second. To navigate this intricate process effectively and impartially, the guidance of a professional consultant is indispensable. They serve as a vital ally in stewarding the transition successfully and fairly, benefiting all stakeholders involved and ensuring the legacy of the family. 

In the realm of business transfer, it is crucial to realise there are two primary dimensions: the transfer of management and the transfer of ownership. Each dimension presents unique challenges that must be diligently addressed throughout the process.  

The first challenge concerning management entails the competence of the successors and their willingness to take over the business. The issue is many children do not want to take over. There are various reasons for their hesitance. They see their parents’ stress; they have their own vocations; they don’t want to be perceived as part of what Buffett termed ‘the lucky sperm club’. The other side of this coin is whether the successors have managerial skills and competences crucial for the take-over. This is not always the case.  And we must keep in mind that the first-generation handover is a critical time for a company; it needs exceptional leadership to guide it through this potentially volatile period.   

Many founders also find it difficult to step back (the HBO example of Logan Roy encapsulates this beautifully). Only 18% of founders are willing to step away completely or move to the supervisory board; a significant 58% plan to keep their company office.  

The second challenge – whether to keep the company shares in the family or pass these on – is a common dilemma. Some parents don’t wish to donate their shares to their children. Instead, children leverage the company to buy these shares from their parents. Then there is the decision to sell to outside investors – this could help to recapitalise a company – perhaps even save it.  

In this instance, it is critical to consider how much of the family wealth is allocated to the company as the transfer of management or of ownership could jeopardise this, in cases when the company represents the full allocation of wealth. This is especially true when the business is still small, and the markets are volatile. 

What an M&A advisor can bring to a family business 

M&A could present a special opportunity for young businesses, where the families are seeking to cement the future. 

For example, in a case where the idea is to sell the business to family successors through the leveraging model, an advisor can help carry out the transaction using mezzanine debt and private equity financing. Translink Corporate Finance can help to pass the shares on to the children, while recapitalising the company to foster faster development. Then, once a project is completed, it is still quite easy for investors to exit and for a family to get back full ownership via buy-back or the public stock exchange.  

In the case where the children don’t wish to get involved, an advisor plays a crucial role in finding the right alternative – for example, a group of managers could buy out the majority or minority share via the management buy-out or management buy-in model. In this case, responsibility for the company becomes the managers’, while a family could retain at least part of the value of the company.  

An advisor could also help join one family business with another. The advisor facilitates a family business to make a shadow swap or partial buy-out, resulting in it accruing a smaller stake in a larger company made up of both family businesses. The famous takeover of Bulgari – a more than 100-year-old family business – by family-owned group LVMH, is an example of this. This deal saw the Bulgari family become the second largest shareholders in fashion’s largest corporation.   

Translink has facilitated many of these deals, including our recent transaction that saw Polish family company Fox Recykling passing ownership to Saica, a multi-billion-dollar Spanish family company. The deal saw 24% of Fox’s shares staying in the hands of the founder’s two sons, who also retained their roles as managers.   

Finally, in the case where children are willing and capable successors, an advisor can help bring their company growth plan to life by helping them expand through acquisitions, as we’ve done for Klinika Bocian, a network of infertility diagnostic and treatment clinics. We’ve completed three acquisitions so far, with another underway.  

Selling a family business 

European statistics show most family businesses would consider the succession of ownership outside the company – in Germany, this figure is 57%; in Sweden it’s 61%; and in Switzerland it’s 65%. All strong evidence most companies would consider a sale. Three key steps in such a transaction are:  

1. Preparing a company, which should start months or years prior to commencement of the project: For example, preparing a plan of future development for new investors, ‘cleaning up’ balance sheets, reviewing financial reports and supplier contracts, as examples.  
2. Considering the optimal sale structure: The structure of a transaction depends on what owners want to do with an investor, for example, do they want to sell in installments, over a longer period? Tax considerations are also key, along with creating a plan for how cash and assets will be managed post-sale. A family foundation can be an excellent vehicle to future-proof assets.
3. Having a clear vision of what is next: This includes how to preserve the family’s wealth, helping the family members and founder navigate a ‘new life’, and negotiating all the different familial dynamics to provide a positive outcome for all.  

 Translink has been involved in myriad succession deals and we know how to navigate these with deep compassion and care. Our wealth of experts means extensive experience in every step of succession planning and dealmaking. We are trusted stewards who always have the family’s best interests at heart.