I grew up in a family business that was created by my grandfather and developed by my uncles and father. At 16, I remember telling my father that I would never go into the family business and less than two years later, he sold his stake in the company to his older brother. With the recent announcement of the Mill’s family selling Medline to Carlyle and Blackstone, I felt it important to spend some time on this issue.

Families across the world, regardless of which generation they are in, have a major decision to consider; do we keep building the family business or do we exit? As we come out of the COVID pandemic where there are shortages of raw materials, household appliances, and many other products, we sit at a major inflection point. This squeeze is pushing up prices and has created an interesting opportunity for families to consider selling their businesses.

The decision to sell is always an emotional one and we should not underestimate how difficult it is to take that step. It has been my observation that there are several reasons that families make the decision to sell their businesses:

  • The family receives an offer at a higher valuation than they had envisioned.
  • The next generation has no interest or capacity to manage the business.
  • The family is exiting a non-core business.
  • The family decides that it is time to exit the sector, as there is no future for further growth.
  • A divorce or a family feud pressures the family to sell.

The decision to sell a family business is rarely driven by taxes. This is because in most cases, the basis (the value at which the business is held on their personal balance sheet), is so low that taxes are part of the picture but not a deciding factor.

Regardless of the motive to sell, it is critical to ensure a family constitution has been crafted, decisions have been taken on how to hold the assets post the sale, and what proportion (if any) will go towards philanthropy. These are all difficult and important issues to consider well before making the decision to sell.

The most important advice I would share with families in this situation would be as follows:

  • If you are thinking about selling your family business, first sit down and review your current assets. How up to date is your planning?
  • Same applies if you are already in discussions, although time constraints and pressures will be different and may impact your decisions.
  • If you agreed on the sale, all other pressures should now be greatly reduced. Ensure your planning is up-to-date and reflects the views and values of the family.

In all cases, it is recommended that the family audit their current situation. How are they holding their current assets? What planning is in place and is it up to date? How about a family governance? Are they setting aside any assets for philanthropy? Does the next gen require any education on finance and philanthropy? How about family meetings? If they have a family office, ensure it reflects the family and not the founders. Finally, do a review of your family office and ensure that structurally it is setup professionally (i.e. with a family office rulebook).

These are the essential ingredients to ensure a successful transition and to maintain family harmony.