CONSIDERING THE OPTIONS

Passing the business to the next generation requires the consideration of numerous issues. These include the commercial risks and prospects, the competence and willingness of family members to take over the responsibility, the need to balance financial and non-financial factors and the desire to divide the wealth fairly.

It necessitates a detailed plan, starting with the purpose of continuing family ownership, the role of the family in management, suitable processes and criteria for decision making and safeguards to protect the interests of minority shareholders.

Alternatively, if the decision is to aim for a full or partial sale of the business, rather than passing it to the next generation, this also requires careful planning, both to prepare the business for sale and to prepare the family for a transformational event.

The family will also need to decide what to do with the sale proceeds, whether they should simply be distributed to family members, or held and managed collectively. If the latter, the purposes of collective arrangement need to be defined, with suitable structures and family governance.

 

PLANNING THE SUCCESSION

​Stonehage Fleming helps families plan the successful transfer of the family business to the next generation and will help to put in place a strategic governance framework which will meet the needs of the family for the longer term.

Our approach depends on the circumstances, but it may involve the family developing a shared vision and objectives. In many cases, this results in a written family agreement, often referred to as a family constitution.

RAISING EXTERNAL FINANCE

​Many family businesses reach a stage at which they require external capital either to finance expansion or to reduce the family’s exposure, enabling them to diversify part of their wealth into other assets. Bringing in an outside investor has huge implications for a family owned company, inevitably forcing the family to adapt to new requirements and expectations.

​We support families in defining the need, in searching for the right investor and in negotiating the transaction. We also help manage the transition from being a wholly owned family business to a company with responsibilities to external investors.

PLANNING FOR A SALE

​The decision to sell any business requires extensive analysis, good judgment and careful planning. For a family business, it can also be further complicated by family considerations. Once the decision is taken, both the business and the family need to be prepared for the sale, identifying key objectives for family members and positioning the business to achieve those objectives.

​Stonehage Fleming is able to assist in facilitating the initial decision, through to the planning, structuring and execution of the deal itself. We will also help manage the impact on the family and will advise on the management of family wealth post the sale

 

Engage corporate finance advisers two years before a transaction

Businesses benefit from early strategic preparation

It is essential to engage a corporate finance adviser well in advance when planning a corporate event, according to Simon Boadle, Executive Chairman of Stonehage Fleming’s Corporate Finance business.

“Advisers add a lot of value, provided they are well briefed and given tailored roles,” he told guests at our Entrepreneurs’ Forum in London this week. “Corporate finance advisers help businesses with the decisions they need to make a good two years – sometimes up to five - before a transaction,” he said.

One reason for this is the number of different options for a liquidity event, be it refinancing through debt, an IPO, a partial sale through private equity or a full sale to trade, explained Simon. “Understanding which of these is a practical possibility and at what sort of valuation or what sort of consequence for the business is really important to establish early on. You can then map out a strategy for achieving the right one.”

According to Simon, planning is key: “These liquidity events, like taking on new investment or selling, are life-changing for a business. They happen very rarely, so it is important to get it right and get a good strategy mapped out a long way in advance.”

Planning a strategy for reviewing the Board or revisiting how to run the business to prepare for the future is vital, explained Simon. “If you want to achieve an IPO in three years’ time, there are certain things you can do to shape the business to make it more attractive to stock market investors,” he said. “You may also want to present the business differently to an audience of potential investors. Your corporate finance advisers can help you with this strategic planning.”

Made up of a corporate financier, a lawyer, an accountant and tax adviser, Simon explained the huge importance of the ‘core’ advisory team for a business involved in a transaction. “The other specialists in the advice chain also play essential roles,” he said, “but the difference between them and the corporate finance adviser is that most are engaged only when a tangible transition is in the offing. Corporate finance advisers work predominately on a success fee basis. A lot of the early planning can be done either for effectively no cost, or be rolled up into a fee payable later on. That is another big attraction for entrepreneurs.”

Disclaimer: This article has been prepared for information only. The opinions and views expressed on any third party are for information purposes only, and are subject to change without notice. It is not intended as promotional material, an offer to sell nor a solicitation to buy investments or services. We do not intend for this information to constitute advice and it should not be relied on as such to enter into a transaction or for any investment decision. Whilst every effort is made to ensure that the information provided is accurate and up to date, some of the information may be rendered inaccurate in the future due to any changes. © Copyright Stonehage Fleming 2019. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. It has been approved for issue by Stonehage Fleming Advisory Limited, a company authorised and regulated in the UK by the Financial Conduct Authority. It has also been approved for issue by Stonehage Fleming SA which is regulated in Switzerland by the Association Romande Des Intermédiaires Financiers and Stonehage Fleming Trust Holdings (Jersey) Limited which is regulated by the Jersey Financial Services Commission. It has been approved for distribution in South Africa by Stonehage Fleming Financial Services (Pty) Ltd, an authorised Financial Services Provider.

Close

Non-exec chair indispensable for businesses with ambition to grow

Strengthening their team with outside experience should be a priority for entrepreneurs, according to David Barbour, Managing Partner of FPE Capital which invests private equity funds raised from Stonehage Fleming clients and external investors into high growth UK smaller companies.

“Founders don’t tend to see a non-executive chair as something they want to put in place,” he told guests at the Stonehage Fleming Entrepreneurs’ Forum in London last week. “On investing, we always recommend that they do. We look for someone who the team and founder entrepreneur can really buy into and ensure it is a joint appointment, not an imposition,” he added.

Running your own business is, by definition, a very personal enterprise. Many founder entrepreneurs find the prospect of handing over any responsibility and taking advice at the top level an uncomfortable concept to wrestle. For this reason, said David, when his team comes across a company with a non-executive chair already in place, they see it as a very good sign.

“It is rare we meet a small company with an existing non-exec chair. When we do, we see it as being very progressive. For us, the non-exec chair is one of the essential three pillars of management: the team, the board and us.” The presence of such a chair plays a very important role in moving strategy forward, explained David. “They mediate and help to prevent bilateral yes/no discussion on strategic or financial issues.”

They should bring to the business the sort of strategic input the business does not yet have internally. This, coupled with their dispassionate perspective, is key, said David: “Their role is to make sure the business has proper corporate governance in place and that all issues on the table are dealt with in a completely open, non-emotive way.”

When it comes to looking at the second phase of investment, having more support at the top will stand you in good stead, said David. “Assuming you are not going back to your existing investor base, you are going to encounter a bigger scale of investor who will come at it afresh. They are going to start right from the beginning again, asking more questions and carrying out more extensive due diligence,” he said. Having the back up of your non-executive might have been well worth it.

Disclaimer: This article has been prepared for information only. The opinions and views expressed on any third party are for information purposes only, and are subject to change without notice. It is not intended as promotional material, an offer to sell nor a solicitation to buy investments or services. We do not intend for this information to constitute advice and it should not be relied on as such to enter into a transaction or for any investment decision. Whilst every effort is made to ensure that the information provided is accurate and up to date, some of the information may be rendered inaccurate in the future due to any changes. © Copyright Stonehage Fleming 2019. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. It has been approved for issue by Stonehage Fleming Advisory Limited, a company authorised and regulated in the UK by the Financial Conduct Authority. It has also been approved for issue by Stonehage Fleming SA which is regulated in Switzerland by the Association Romande Des Intermédiaires Financiers and Stonehage Fleming Trust Holdings (Jersey) Limited which is regulated by the Jersey Financial Services Commission. It has been approved for distribution in South Africa by Stonehage Fleming Financial Services (Pty) Ltd, an authorised Financial Services Provider.

Close

Related Articles


Approach

Our approach is rooted in a deep and practical understanding of the family, its wealth and wider circumstances. We help families develop and implement their plans to pass on an enduring legacy.