Investment Valuation






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Investment Valuation

Dear David, What are the most popular (and successful) exit strategies when you need to close down a family business?
Dear What’s the Process, The question I should ask you first is why would you want to shut the business down? If the owners are approaching retirement and have no-one to pass the business to, I assume that means that they have no one who wants to operate the business. This is distinct as to owning the business. I think the answer somehow lays in the previous question as the owners would want to extract the wealth they have created. You have indicated you are considering all options including sale externally and that you are particularly interested in wealth extraction strategies. It starts with identification of the likely buyers who are going to value the business the highest. All too often I find that it is the business owners who usually know that and that is mixed and varied. You would never dismiss competitors wanting to increase market share. Extracting value depends on the size of the business (small business tax concession availability), franking credits etc. This is really a corporate finance exercise.
Dear David, Our experiences have shown that US investors don’t normally have the same values and have their own guidelines. This has a negative effect on the vendor Australian family, especially if they have been retained in the business to assist the new operators.
Dear X, I think that this identifies as an example why the characteristics of the supplier of capital are important in a family business situation. I wouldn’t be too harsh on US investors and particularly those that have a genuine interest in the family retaining control and that are patient. I think your investor doesn’t sound like a family patient capital investor but more buy-out. I think you could give the same example for many nationals that invest in any asset across their boarder. The key is do they understand families in business and want to nurture that because they see it as a valuable part of the investment. You have indicated that you think the issue is whether they understand the concepts of a family business and that it was treated by the purchaser as a buy-out. This is a major cause for challenges. I recently had a large group in Sydney who sold a very large business to a Chinese company. The patriarch of that business thought he was making the right decision until after the sale proceeds were in the bank, the sons then said, “Why did we do it dad as this was our legacy and we will have to go a long way to replace such a good long term asset. We would have liked to expand globally and really kept things going.” A bit of an extreme case to make the point about the human element/capital and delving beyond financial success.