‘A third of family businesses want to sell business now,’ was the headline in the Financieel Dagblad on December 9. The article referred to a study by ING Economics Bureau, Nyenrode Business University and FBNed. The main reason for selling concerns reaching retirement age. But for larger companies, the fact that children can take over the business more cheaply also counts. “Due to the continuing economic headwinds, the business is valued low,” the article says.
Transferring to the children
What is clear is that the analysis focuses on transferring the business to children within the family rather than external buyers. After all, with a transfer to the children, it is an advantage that the business is not highly valued. But that is also where the shoe pinches immediately. Not all family businesses will prefer to transfer the business within the family. Whether this is possible depends on many factors, such as the suitability and age of the children, but also whether a takeover fits in with personal ambitions. After all, the new generation has different goals than their parents. Also, the (strategic) market position of the company must be so strong that the new generation has confidence in the future of the company. After all, a transfer often requires additional financing to pay for the transaction, and the younger management just has to be able to cope with the current market challenges and keep the company healthy.
Transfer to an outside buyer
Now what if none of this is the case and a transfer to an outside party is the only choice? So is now a good time to sell the business? I think so. Assuming the business is healthy and performing decently. Because when a company is in bad weather, it better not think about selling. Not to an outside party, and certainly not to the family. First, it will have to put its house in order. But assuming the company is performing reasonably, there are plenty of reasons to sell now. I will list the most important five:
1. It is always better to sell in an up economy than a down economy. After all, the value of the company is determined by its future earning power.
2. Economically, things may not yet be going for the wind in consumers’ perceptions, but in the stock market and in investment land, sentiments are good. This is reflected in the higher calculation factors currently used for enterprise value and a rising stock market.
3. Last year, private equity parties invested relatively little in companies. Almost all investors still adopted a wait-and-see attitude. However, many investors are eager to acquire companies for the coming year. And are too few candidates for the huge amount of money available for investment.
4. Family businesses have attracted enormous interest from institutions, banks, accountants and other service providers in recent years. After all, they have performed well during the economic crisis. This has increased the recognition and appreciation of family businesses.
5. In the new (rising ) economy there will be many changes in the pipeline such as digitalization, new forms of distribution and new margin distributions due to greater transparency. The size of companies becomes increasingly important in this new era so joining the bigger brother or a capital powerful invested is not a bad idea.
By: Maarten Vijverberg