Family businesses are predominant in the Brazilian market, whether small or even large conglomerates that, over time, have become leaders in their areas of activity. This claim can be supported by a recent IBGE survey, which indicates that at least 90% of enterprises in Brazil have this profile,corresponding to 65% of our GDP.
It is not at all uncommon, however, that these companies also go through a process of mergers and acquisitions, for one or several reasons. But what are the main challenges of an M&A operation when the business in question involves a family base? Continue reading the article and learn more.
What makes a family business go through a merger and acquisition operation?
In order to understand the main reasons that lead a family business to consider a merger and acquisition operation, we first need to understand a little about some of the nuances that involve businesses of this nature.
As the name implies, one of the main characteristics of businesses of this type begins at the top of the hierarchical pyramid, with the main management positions held by members of the same family. Generally, these posts are passed down from generation to generation.
Another very strong trait of family businesses is the emotional and affective bond that shapes the relationships between the people involved and the business itself. There is a very common point, and, at the same time, one of the main factors resulting in an M&A operation in this type of company: the personal connections between its members.
You conflicts between family members who run a business is one of the most frequent causes for these organizations to go through a merger and acquisition process. In the absence of an understanding, this is often the alternative found so that disagreements do not cause greater damage and preserve the business reputation built over the years.
A lack of succession planning well-defined approach also leads family companies to opt for an M&A operation. The lack of interest of future generations in continuing the management of companies opens doors for the process to happen and keep the business running.
Many family businesses identify the need to put in place a growth and expansion plan more effective. To accelerate this process, mergers and acquisitions present a path that can lead the business to expand market share and explore new markets more quickly.
As a large part of these companies are constituted, initially, only by family members, both in the managerial and operational part, the desire for a more professional management prevails, with people carrying out their functions through technical capacity and not only through kinship ties. Joining larger companies through an M&A transaction can meet this demand.
Like other businesses, nothing prevents a family business from understanding that it’s time to diversify its portfolio of products and services.To achieve this goal, integration with other organizations may be the right decision.
Main risks of an M&A transaction in family businesses
As in any negotiation, a merger and acquisition process presents risks that must be carefully studied for the operation to run smoothly and obtain the expected result. Hence the importance of having a expert advice.
When we talk about transactions involving family businesses, there are situations that are even more specific and can be decisive for the success (or not) of the sale or merger of the business.
obstacles like the affective component can create resistance to new initiatives proposed by companies that can join it.
Companies conceived in a family environment tend to build a organizational culture solid over the years, based on the principles disseminated from one generation to another. So, the probability that there is a clash of thoughts it is real and must be calculated so that it does not compromise productivity and business management.
Another aspect inherent to many family businesses is directly linked to the tradition, that many of them conquered in the market and that establishes an identity that guides most of their strategies. For a new company that joins them, there is always the challenge of understanding these issues and trying to build a joint path.
Is it worth buying a family business?
For this question to be answered accurately, it is necessary that the party interested in carrying out the merger or acquisition of a family business initially consider what is its purpose and what are the reasons for considering this transaction.
It is essential that a detailed due diligence process is carried out to assess the real situation of the family business that is planned to be acquired:if there are debts to be paid or liabilities to be resolved, if there is a consistent client base, if the aspects of corporate governance are sound or if there is any conflicting component in the management relationships.
One advantage of acquiring a family business, especially when they have some tradition in the market, is invest in companies that already have a consolidated position and present good possibilities of diversifying the business and entering other segments.
As you can see, there is a balance of risks and advantages involved in an M&A operation in family businesses. The way for these mergers and acquisitions to have the expected outcome is precisely to study each case and understand whether the difficulties are worth the business and the advantages compensate for the continuation of the transaction.
We can advance one thing: the help of trained professionals and companies that help you in each stage of the process is essential. In addition, this expert support assists in identifying new opportunities in the market.
