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Pitfalls and Tips When Selling a Family Business


“Govern a family as you would cook a small fish – very gently.” — Chinese proverb

If you think it is a challenge to run a family business, try exiting one. To shed some light on the pitfalls, we sat down with Keith Dee, founder of Osage Advisors, who has worked on over 100 exits for family-owned businesses, 40 of them as the M&A advisor.

Axial: What are the most common drivers behind the sale of a multi-generational family business?

Keith: It usually comes down to whether the second or third generation wants to be involved in the business. What we’ve seen repeatedly since 2008 is parents sitting over dinner with children and realizing the children don’t want it. We’ve also seen situations where a spouse gets sick or there is a death in the family. Lastly, we see situations where the next generation would like to take over the business, but the previous CEO, who often holds majority ownership, doesn’t share their vision and struggles to let go.

Keith Dee, founder of Osage Advisors

Axial: What is it like for the family member acting as CEO?

Keith: It’s usually not a financial decision, but more often an emotional decision. The CEO has controlled their own destiny for 30-40 years. They have created wealth and value. They want their legacy to continue, and they want to protect their second family, which is their employees.

We’re creatures of comfort. We like our own teams. And as the person in charge of the business, you look at a post-exit future and think, “what am I going to do now?” It’s hard to pull the plug. In many cases, you know it’s the right thing to do for you and your family, but letting go is hard.

I just advised the successful sale of a family company where the owner was 77.  He had been worried about the employees, but equally the employees were worried about the future with an undefined transition plan. The final result was a relief for both parties.

Axial: Where can things go wrong in selling a family business?

Keith: Sometimes we come into situation where the family has tried to an internal buyout but it didn’t work and resentment has built up. Things get complicated when family members, not involved in the business, sense the upside and try to get involved. They want to know, “what’s in it for me?” There can be a sense of entitlement with certain family members lurking beneath the surface.

If ownership is fragmented across a family, you can’t get anything done if you don’t have everyone on the same page. You need to uncover that early. People say they are in alignment, but they change their mind. Through an auction process, through constant communication and constant education, you can get people back in line. You can’t make everyone happy, but you can get them to understand and get a deal done.

Even if there is one owner who owns 100% of the stock, it’s not, because it’s a family. You get rivalries. The decision making process is so stressful. You get bombarded at the dinner table. You get off-the-wall comments, and people stepping into your office. You hear, “my hairdresser’s husband says it’s worth more than that.” It requires a lot of education during the process.

Axial: what’s the trickiest situation you’ve found yourself in?

Keith: We had a situation where we had an initial meeting with a father and son, and the first thing the father said was, “I don’t talk to him.”

The son, who had been gifted a 49% stake by the father, didn’t want to buy out the father’s remaining stake because the father was no longer actively involved in the business. Furthermore, the son had used company funds to set up a competing company, unbeknownst to the father, and was planning on leaving to run the new company. The son had been planning on sharing the profits, but the whole thing created a total communication blockade and put enormous stress on the employee base.

Axial: How did you resolve such a tense situation?

Keith: We started with a simple question: “What are your goals and objectives?” Then we made sure that all communication was shared equally. We also let potential buyers know what the son had done, and went to market with a plan for handling rights in the new business. We made sure there were no surprises to anyone.

When you are advising a family business, you often have to act as a referee, a coach, and a psychologist simultaneously.  You need to be very open and clear, and share the good and the bad.

Axial: What’s the most actionable advice you can give to a family?

Keith: I would share two:

  1. Never lose sight of why you are doing this (selling). Always bring yourself back to that question and answer because the emotions that come up during the process will cloud your decision making.
  2. Keep your options open as to your role, how long you stay on, and the deal structure. Different buyers want different things and an open mind can lead to interesting choices.

Axial: What do you think are the most important parts of your role as an advisor?

Keith: With family businesses, it can take a long time to come to a decision about selling the business. Sometimes the family doesn’t even know that the primary owner is leaning towards a sale. Our job is first to help someone think through their options, and then help them get real data from the market. Along the way, we need to be educating and communicating with the family constantly.

The real work begins once the LOI is signed. When a deal becomes real, all the emotions come to the table. As an advisor, you need to stay with them right to the end, because they are still running their business. Our job is certainty of close, working with them shoulder to shoulder until a good deal gets done.

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