Transitioning The Family Business Through Mergers & Aquisitions

On February 20, FBLP members gathered at von Briesen’s downtown law office to talk about the challenges of “Transitioning the Family Business Through Mergers & Aquisitions.”

The discussion was lead by attorneys James Wawrzyn, and Maddy Schmid, who also happens to be a daughter of a third generation business. The two started the presentation by giving participants a “Merger & Acquisition and Succession Planning ID Test” to see where the family business owners in the room stood with selling their personal businesses. Depending on how participants answered the questions they learned if they were ready to simply sell their business to the highest bidder; if they were concerned about the fate of their business but could live without it continuing; or if they were greatly concerned with how the business would continue to exist in the future without them leading it.  

From there, the conversation shifted to some common reasons why familiess sell their businesses  including: boredom or burnout; liquidity or financial diversification; age or health; competitive pressures’ or unreasonable risks. James also pointed out that here is sometimes the unfortunate situation where family members simply cannot get along so they opt to sell. 

Whatever is the reason for families wanting to sell their business, James and Maddy spoke about the importance of planning ahead and making sure that your operating agreement is solid and your ducks are in a row so that preparing for a sale doesn’t have to result in a lot of stress. 

Some common types of mergers and aquisitions for family businesses include third party sales where the seller remains on for a period of time (such as 1 to 2 years) to ensure a smooth transition or the seller may opt to leave quickly; and then Intergenerational Transfers which would occur as a sale, gift or Employee Stock Ownership Plan.

According to Maddy, the sales process from the seller’s perspective involves a number of steps including: preparing ahead of time; deciding when will be a good time to put the business up for sale; drafting a nondisclosure agreement; sharing initial information to those of interest; receiving a letter of intent from a potential buyer; going through the due diligence process with the potential buyer; working with the buyer to put together a definitive purchase agreement that is agreeable to all parties; and then going through the closing process.

Participants were then provided a preparation checklist for selling their business. It included: anticipating due diligence requests; protecting your proprietary information; keeping your financial information up to date and presentable; setting a plan for key employees and existing ownership availability; addressing any regulatory issues; cleaning up inventory and receivables and resolving litigation, vendor disputes and customer complaints.

For more information on selling your family business, you can reach James at 414.287.1476 or Maddy can be reached at 414.287.1264 oe