After integrating a family business, should the former owner remain or not?

This topic contains 22 replies, has 23 voices, and was last updated by  Billy Fok Kam Luen 2 weeks ago.

Viewing 8 posts - 16 through 23 (of 23 total)
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  • #95558

    Erik Cornelius
    Participant

    I’ve had this work both ways. In one situation, the former owner was rolled off fairly quickly, both because of personality clashes and because of his radically different views of how the organization needed to be run. In another situation, the former owner was kept throughout the lifespan of the acquisition, and his contributions and subject matter expertise were critical to the acquisition performing at the level it did. Questions to consider when making this evaluation:

    * What, if any, knowledge does the owner have that nobody else in the organization has? How much do you lose of the acquisition’s value by allowing it to walk out the door?

    * What is the perception of the owner by the rest of the target entity? Will letting the owner go be perceived as new management wanting to get rid of existing talent, or will it be welcomed as eliminating someone who hasn’t been contributing?

    * If you decide that the owner must go, what’s your plan to replace, and how will it be messaged? (Much of that will be influenced by the answers to the preceding questions!)

    #96956

    Dale Deg
    Participant

    Cesar,
    There have been many good replies in this forum, to your question. Mine is similar to some of the others. It all depends on the situation. However, in general, I would say it is best long term for the owner to NOT be part of the ongoing operations or be a key decision maker. It may be best to have a pre-agreed to phase out plan or to quickly convert them to a consultant role, but have the new management be the ones in control. Otherwise, employees may get conflicting directions and fall back into their alliance with the previous owner and how he/she did things.
    Regards,
    Dale

    #97116

    Fathurrahman Latama
    Participant

    I have worked in a family-run business in the healthcare industry, and it has its perks as well as its drawbacks. One of the main perks is how the owners perceived their family business culture as one of their competitive advantages, the owners are close with their staffs and the patients, which makes them feels like the owners genuinely care. In terms of the knowledge and experience, it really depends on the decision made by the owners, which may lead to the drawbacks of retaining the original owners.

    #108709

    Korath Wright
    Participant

    Interesting question. Is it best for an owner of a closely held business to stay on after the transition?

    Smaller businesses may have larger amounts of value produced or support delivered by the owners, with management and owner positions often overlapping. There are a variety of benefits and drawbacks from either perspective, some of which include:

    Buyer Benefits
    • Time to transfer of knowledge
    • Earn out aligns objectives and can reduce financial risks
    • Near term performance confidence
    • Smoother transition
    • More family branding retention

    Buyer Drawbacks
    • Less negotiation power, and potentially higher price
    • Resistance of the seller to change
    • Staff confusion in leadership structure

    Seller Benefits
    • Income after the sale
    • Maintain some lifestyle benefits, but with less responsibility
    • Higher total transaction price including income

    Seller Drawbacks
    • Culture shock as the owner is effectively demoted
    • Performance risks for earn out, including factors now outside of the seller’s control

    Many other benefits and drawbacks can apply when the former owner of a family business stays on after a sale. The materiality of these aspects and what other aspects are relevant varies depending on the specifics of the business case and goals of the stakeholders.

    #109789

    holly firestine
    Participant

    Couple of thoughts – is the Owner providing value on a day to day operational basis or more at a strategic level, is the Owner positively contributing to moving his/her organization forward with the merger or acquisition and rallying the team around the positive nature of transaction to facilitate positive post merger integration behaviors? I’ve seen Owners staying on with great results and not so great results, it really seems to depend on each owner and situation individually. I believe an Advisor role makes sense for a specified amount of time with clear expectations, goals and success measures in place for the Advisor arrangement.

    #109871

    Tobias
    Participant

    As stated before, it depends on many circumstances and no general recommendation can be given. In this comment I want to change the perspective. Most former owners are eager to help with the post-merger integration and stays for a limited time at the buyer. However, at some point former owners oftentimes want a “final cut” and move on, especially if the family business is acquired by a much bigger company as stated in the question. One reason is the difference in management style of a family-owned business and a large listed corporation.

    #110291

    Jay
    Participant

    In most cases the seller that started and is a ‘key employee’ would have to stay on for a period of time (1-3 years) regardless if it is a family business. If it is a strategic acquisition/similar product/market then the buyer may not deem it necessary to have them remain. It would definitely be difficult for some family led business owners to adapt to the corporate management style as mentioned by Tobias above.

    #111771

    Billy Fok Kam Luen
    Participant

    I would say is really depend on the situation of the company. what is his past track record and what is the plan after been integrated. both leaders need to have a discussion to understand what is the next plan for the company. if the family owner is able to agree on the plan and he is able to manage the expectation, why not. but if he can’t, most likely is to be replaced.

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