Succession in family companies – how to deliver a positive and amicable transition

Succession in family companies

Family Business Place’s 2016 annual survey of family businesses found that only one-third of them had a succession or exit plan. Unsurprisingly 70% of family-owned business fail or are sold before the second generation gets a chance to take over.

Exit and succession planning can be difficult in any business, but family businesses have special factors to consider. One problem is that the two key objectives – liquidity and preservation of the family business legacy appear to be in conflict – how can you get cash without selling up? A sale to a trade buyer may be unattractive if the plan is to keep things in the family, and this is where the idea of a sale to family comes in.  

In a family management buyout, the relatives buying the business are very often the team running the company. Sometimes called FAMBOs at PEMCF, we prefer to refer to such deals as Succession Buyouts – because that neatly encapsulates the overarching strategic intent.

Because family relationships are involved things can go wrong delaying or even killing the transaction.  Here are some key thoughts on how to preserve family harmony whilst successfully completing a buyout.

Take account of people’s personalities

Be alert to the personality traits or past circumstances fuelling unusual levels of loyalty, resentment, or jealousy. This might all come out in the run up to a transaction, sometimes they are deep-seated psychological feelings, and can be almost childlike — “Dad always preferred you.” Steering the transaction in a sensitive way that respects feelings will help ensure success.

Get the business professionally valued

If your shareholder agreement doesn’t prescribe how to value the business an independent valuation will help. Fairness is the key to completing the transaction and preserving positive family harmony.  

Find some trusted advisers

Truly independent advisers who have the best interests of the family in mind can help to facilitate agreement. Each family member can get independent advice, but it’s much better to select an adviser with a track record of brokering/facilitating such deals amongst close-knit families.

Tax and estate planning

Has the family provided for everyone as they intend and have they done inheritance tax planning? This needs to be done early.

Join PEM Corporate Finance in Cambridge on 8 June or Norwich on 22 June for our popular half-day Business Exit Strategies seminar. to book your free ticket.


Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.

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