To Sell or Not to Sell? That’s the Question for Family Businesses
“61% of family businesses do not have a written, formal succession plan in place.”
“13% survive the transition from second to third generation.”
Let’s assume you are a founder, or a family employee in a business, or maybe you’re a fellow advisor to family businesses. If you have any connection to family businesses, then these dire statistics are likely familiar. You have probably seen these data points interwoven in research aimed to induce fear or unease in the family’s current business state or lack of governance; perhaps even cited in an article titled “Family Business Succession Challenges” or in the famous adage, “from shirtsleeves to shirtsleeves in three generations.”
More often than not, it’s hypothesized that these statistics are accurate generalizations for families that have disregarded succession planning due to lack of forethought, or that they convey the need for family decision makers to proactively implement and codify succession planning. But what if we considered these data points in another context: families intentionally not putting a traditional succession plan in place because the goal all along was to sell. An argument could be made that some families have preemptively discussed their next chapter, and that it does not involve continuing to operate the business within the family. After all, some founders never plan to pass down their businesses. While all businesses—public, private, or family owned—need to have a succession plan, perhaps some families have taken a less rigid approach due to their inclination to sell. Is it possible that some families are more attuned than they are credited with?
Given the sheer number of businesses in the world and the fact that most businesses are privately held, the decision to sell or not is a common occurrence. Whether a business has been passed down one generation or six, eventually, a family will be faced with a choice. Below are a few examples of families in the news that have faced this decision recently.
So why might a family choose to sell their business?
Birkenstock: Alex and Christian Birkenstock, brothers and members of the 250-year-old shoe dynasty, sold a majority stake to private equity firm, L Catterton, in 2021 collecting more than €3Bn. Both brothers joined the family business in the 1980s, along with their older brother Stephan in the 90s. By 2002, the trio took control from their father yet struggled to align on a single vision for the company. Stephan exited as a shareholder in 2009, and Alex and Christian went on to receive €100mm in annual dividends before eventually deciding to sell themselves. The sale to L Catterton was finalized in 2021, who then took the company public in October 2023. According to the CEO, Oliver Reichert, “The best thing for the brand would be staying family owned, but within the family there were so many problems, so we go for the second-best option and that’s to be public and give the brand back to the people.” Christian still holds a minority position in Birkenstock while Alex is no longer listed as a shareholder.
Jelly Belly: The candy adored by children and US Presidents alike, Jelly Belly, became so popular that the Goelitz Rowland Family renamed the company Jelly Belly Candy Company in 2001. Family owned and operated for six generations, the Rowland’s sold Jelly Belly to the Ferrara Candy Company in October 2023. Herman Rowland, Sr., Chairman of the Board of Directors recognized Ferrara as a like-minded group that shared the family’s knowledge and passion. “[Ferrara] has the talent and resources to grow our products and the careers of our people around the world. I am confident of the continued success of Jelly Belly as part of the Ferrara portfolio.”
Or to not sell?
Hermès: In 2023, the hundred-plus-member family unanimously agreed not to sell their majority position until at least 2041. The family owned nearly 67% of the French luxury brand at the end of 2022 and is determined to retain a majority stake for the near term. They have created a holding structure that contains 54.3% of Hermes’ shares and gives family members the right of first refusal to buy stock from each other to protect the family’s control from heirs who might be tempted to sell to outsiders. (LVMH’s Arnault, with his reputation for takeovers, owns just under 2% of Hermès and is considered a threat to the family’s control of the business.)
Aside from the parties involved who were privy to each of these decisions, the true drivers that led the Birkenstocks and Rowlands to sell and the Hermès Family to hold remain unknown. We can, however, use these stories to draw out common themes that most families are faced with when considering whether to sell their business or not.
- Family Dynamics: The lack of family cohesion, loss of interest or burnout, or failure to identify a family successor could prompt the consideration of a sale. Alternatively, a business can unite the family, bridge generations, and cultivate a propriety powerhouse of knowledge that leads to stronger family bonds—and business results.
- Cost-Benefit Analysis: There reaches a point when managing or operating the business is physically and financially more burdensome than the returns signify. Many family business shareholders are familiar with the concept of being ‘cash poor,’ and if the dividends are minimal, selling can be viewed as the only way to get liquidity.
- Diluted Ownership: Concentrated ownership is a powerful medium until the business spans multiple generations and diverging views between branches and owners become apparent. For multi-generation businesses with numerous shareholders and decision makers, the process of reaching a majority agreement becomes much more difficult.
These are a few of the myriad considerations a family is faced with when determining their next chapter. It starts with having a series of conversations with the family decision makers regarding their personal, business, wealth, and legacy goals. Identifying and sharing these intentions can guide the family to a common objective or reveal diverging views and thus a path towards ownership reconsiderations. At Wingspan, we help families think through their legacy objectives, facilitate the ‘hard’ (and uncomfortable) conversations, and partner with families to ensure that their next chapter is one written BY them, not FOR them.