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How to sell a family business

Interview with...

Steve Rebbettes, BCMS Corporate founder and operations director
Topics covered:
Starting the business, growing rarity of second-generation businesses, how family businesses flourish, managing transition of ownership
CV:
Established BCMS, which advises on business sales in many jurisdictions, about 20 years ago
Expertise:
Experience selling businesses for two decades
Location:
HQ in Berkshire, also has offices in the US, Canada, Norway, Sweden, Finland, Germany, Romania, Turkey and China

Steve on the genesis of BCMS Corporate...

"We're a family company: it's myself, my brother and my father. We set it up in the late 80s".

"We ran another company at the time called Contract Leads, and were approached by another company which wanted to buy us. They made us an offer but we really didn't know if it was a good offer or a bad offer.

"We didn't know anything about company valuations. We went to our accountants and said: 'What do you think of that?' And he said we should bite their arm off.

"But we said: 'Hang on, we've got nothing to benchmark it against.' So we spoke to a number of different companies and one of them made a higher bid.

"We then started a bidding situation between two buyers. We ended up selling it for 30-40% more than the opening offer."

The  bigger issue with a family-owned company is where family identity becomes associated with that company, so when you sell it then you are potentially losing a dynamic

"We actually sold it and the three of us enjoy working together, so we thought what do we want to do with the rest of our lives? We don't want to retire. We thought we can't be the only owner-shareholders with no idea what to do when they're selling a business."

On 80% failure rate of second-generation businesses, and the increasing rarity of passing on businesses to offspring...

"It's different in places like Germany where there is a much lower attrition rate."

"An awful lot of our clients are a guy and his wife who've brought the children in, but they're just not cut out for management or it's not something they particularly want. Then it almost becomes Hobson's choice: if the kids dont want the company then they may as well turn the company into cash.

"It's [passing on the company to sons or daughters] very rare.

"The  bigger issue with a family-owned company is where family identity becomes associated with that company. Consequently, if you come to sell it then you are potentially losing a dynamic."

On being a judge on Family Business of the Year...

"I was interested in how a small to medium company like us goes on to become a larger company and what the obstacles are. So when I was assessing the really successful family businesses, many with turnovers in excess of £100m, I was curious about how they did it.

"One thing I observed was that they all appointed non-family members to the board. I felt that was a really wise thing to do.

"When we won Family Business of the Year the company that won the big prize went to Wates, a building company started by the Wates family. The company identity was very tied in with the family.

"Richard Branson could never sell Virgin as it would lose a dynamic person at the top. This can happen to a greater or lesser degree with family businesses.

On how to maximise value when so much intangible value resides in the family and its reputation...

"We work with the owners to extricate themselves from the business. 

"I'll give you an example: we had a husband and wife whose business was so reliant on them that they couldn't go on holiday together, which was one of the drivers for selling. Clearly, if it's that reliant on them it's going to increase the risk to the buyer and impact on the price.

"We were smart and proposed a deal structure where they pay 80% now and we put a manager in full-time for a period. They could work with that manager for an initial three or four days a week, reducing over the course of a year to one day.

"The remaining 20% is paid according to whether gross profit targets are hit. It handles the transition period and also motivates us to deliver profits, because 20% is a meaningful amount.

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