The sale of a family company is, at times, the only way to ensure its continuity. The difficulties in passing on an entrepreneurial spirit to the next generation and the existence of conflicts arising from the lack of communication skills among the members of family companies are among the reasons for some of them being sold.

The family company often undergoes the sale of the undertaking as an event which is more emotional than entrepreneurial. This sentiment complicates the decision-making process. Even though the family acts as if it were prepared to sell the company, if the emotional issues are not understood and recognised, these will rise to the surface in the form of concealed resistance, prejudicing the negotiations.

The decision to sell a family company should take into account various factors and, inter alia, answer various questions, such as the following:

Are there any successors with the necessary skills for running the company?

Will the market accept a price which is satisfactory for the current owners?

A sale may be an emotionally comforting financial decision. Continuing under family ownership when the relatives are not interest in the company, or are not capable of running it, makes no sense, and could cause the enterprise a significant loss in value.

We advisors try to ensure that the family speak frankly about the emotional and personal implications of the sale. If we ignore this aspect, the relatives might adopt attitudes which seem strange to us. It is important for the family to understand that their feelings are neither good nor bad, but rather must simply be taken into account.

We advisors help clarify the differences between the emotional reactions of the family and business decisions: the two issues should be separated in order to carry out the process effectively. It is possible, and indeed recommendable, to remain aware of the emotions while, at the same time, taking objective business decisions.

If the family eventually decides not to sell, weighed down by personal reasons, as advisors we try to ensure someone takes responsibility for such decision and reasonably understands its consequences. The advisor can give an opinion, while respecting the decision the partners might take. They should certainly not be blamed for any negative consequences arising from the decision not to sell.

A common mistake of family entrepreneurs is believing that selling will be easy. Businesspeople might be surprised by the amount of the exit fees of a sales transaction, which only represent a small percentage of the product of the sale.

The main stages of a family company divestment process tend to start with an appraisal report providing the transaction with a focus. Normally, the appraisal precedes the analysis of any alternatives existing. The subsequent preparation of a sales log will enable potential candidates to be identified from among those interested in receiving information on the operation. The subsequent negotiation procedure will open up the way for a due diligence process on the part of the purchaser, the conclusions of which will allow it to be clarified whether the prior letters of intent must undergo any changes or will remain in all their terms, facilitating the ensuing closure of the transaction.

A study by IESE based on the opinions of experts and family entrepreneurs clearly shows the virtual non-existence of any cost-saving synergies when the company purchased is of a family nature. The same study indicates, through the opinions of family entrepreneurs, that some family companies do not use financial investors in their sales transactions, preferring other undertakings from their same sector, except in cases of MBO or MBI (purchase of the company by its own or the external management team), because their entry would take at the lowest price possible and they would try to optimize their purchase price.

The investment timeline for financial investors will be a maximum of three to five years, or six years, and all actions will be aimed at revaluing their investment to the utmost in the shortest time possible, an attitude which may contradict the very essence of the family company.

The family companies in our environment to not tend to be very active in purchasing enterprises, but take advantages of any opportunities arising, especially when dealing with entering international markets. Purchasing decisions in family companies are often taken unanimously, with the subsequent difficulty in making a fast decision although, once the decision is taken, the unanimity allows the negotiation to be quicker.

Thus, the emotional components related to the sale of a family company are highly present throughout the transaction process, from the initial decision to sell until its culmination. Treating them as such is essential to the success of the process.

Albert Santamaría Pey, Partner at Auren Corporate