Family Matters

Ever hosted a summer barbecue and wound up with more guests than you anticipated? Neighbors smell the burgers on the grill, wander over, and soon enough they’re in your backyard. One could argue that the same phenomenon has happened in private equity, which has attracted scores of new debt providers and equity sponsors looking to ride the current deals wave. To some PE veterans, these newcomers are seen as uninvited guests. They make multiples even higher, they haven’t lived through a down cycle, and they don’t really understand the ins and outs of private equity, the argument goes. But the truth is, cash is king, and even newbies have a legitimate shot at buying and financing companies, if they pay up. Bankers tell us countless stories about deals in which the highest bid didn’t win, but in more cases than not, the price difference between bidders wasn’t significant. The one exception to that rule is family-owned businesses. Cash is important to them, but when you factor in issues like retirement planning, succession, and cases where the seller wants to grow with the PE buyer instead of cashing out altogether, experience really does make a difference. Price, while incredibly important, may not outweigh concerns about succession or job security for family members after deal closing Due to the complexity of these situations, family business acquisitions can take several months – sometimes years – to complete. That helps to explain why the family business segment can still call itself a niche, while other areas of the middle market seem to have reached a saturation point. Our roundtable on family-run firms (see page 41) provides a glimpse of what it takes to buy such a business. The panelists have no shortage of challenging deals to recount, and what they all acknowledge is that such acquisitions can be a headache. For that reason, I’m guessing that the M&A party in this niche won’t get out of hand in the foreseeable future. Adam Reinebach, Publisher (c) 2007 Mergers and Acquisitions Journal and SourceMedia, Inc. All Rights Reserved. http://www.majournal.com http://www.sourcemedia.com