Selling a family business is a significant milestone, and it often involves as many emotional challenges as logistical ones. While finances and strategy are important, interpersonal dynamics are a crucial but often overlooked consideration in family-owned M&A transactions.
Walden Principal Sara Burden recently shared her insights and firsthand experience with these unique issues, including common challenges, solutions, and effects family dynamics can have on a business transaction.
Recognizing Challenges & Finding Solutions for Family Dynamics
Sometimes, business owners enter the M&A process without fully considering the impact on their families and how their reactions will affect the sale. This oversight can lead to unexpected challenges, particularly when family members play active roles in the business.
“Family dynamics are interesting because many people don’t consider them until they’re a problem,” Burden said. “I have seen it kill a lot of deals, specifically when there are family members who either work in the business or have a strong influence on what happens in the business.”
Burden shared several examples of how family dynamics can disrupt a sale. One instance involved a husband and wife team, in which the husband’s desire for control overshadowed his wife’s contributions, creating tension and jeopardizing the deal.
“If a buyer senses too much friction, they become hesitant,” Burden said. “In this particular case, we coached him on allowing her to participate and also planned out what she was going to say. We also emphasized showing respect for one another so the buyer didn’t pick up on any underlying tension.”
Burden recommends coaching family members and collaborative decision-making to maintain a unified front.
Another potential challenge is when family members undermine the primary decision-maker. Burden recounted a scenario where a wife and daughter consistently criticized the husband, who was the company’s leader, in meetings with potential buyers.
These uncomfortable interactions contributed to the loss of multiple prospects and eventually stopped the transaction in its tracks.
“We told them we couldn’t proceed until they resolved their family dynamics,” Burden said. “In these cases, if they listen to us, we can continue to pursue the transaction. If they don’t, you almost always lose the deal anyway because buyers don’t want to get involved.”
Uncovering Existing Internal Issues
Unsurprisingly, the stress of M&A transactions can amplify long-simmering family tensions.
“It’s a mix of existing issues and the added pressure of the sale,” Burden said. “If you can’t get them aligned from the beginning, you may not be able to sell the business.”
The Importance of Alignment
Ensuring all family members are aligned on the goals of an M&A transaction is crucial. This involves open and honest conversations about expectations, responsibilities, and future plans.
“While you can’t predict everything, you can set intentions and work towards a common goal where everyone benefits,” Burden said.
When multiple family members or generations are involved, buyers also want to know the long-term plans for family members within the business.
“Oftentimes when a business is sold and the family wants to take their money off the table, some family members may stay on to help transition the business to new employees, but everybody is planning to leave eventually,” Burden said. “The buyer needs to know from the get-go that they’ll have to replace multiple people, not just one.”
Protecting Legacy & Culture with the Right Buyer
Finding the right buyer is paramount for family business owners who are concerned about preserving their legacy and culture. This involves thorough vetting and alignment of values early in the process.
“Our role starts with understanding and aligning with the seller’s goals, which allows us to narrow the field based on the owner’s desired future for the company,” Burden said. “It’s always validating when we’re in a buyer-seller meeting and the buyer says, ‘What’s the ideal buyer for you?’ and the seller restates exactly what we’ve been looking for.”
Navigating Family-Owned M&A Transactions Smoothly
Managing family dynamics is an essential, yet often overlooked, aspect of M&A transactions.
By recognizing potential challenges, fostering open communication, and aligning on goals, family business owners can navigate the sales process successfully and ensure a smooth transition.
Are you thinking about selling your family-owned business? Fill out the form below to start a conversation with the Walden team.
