The heart of the deal

There’s been lot of consolidation in the market for several years now, and I’m not expecting it to slow down any time soon. Business owners do talk, after all. And when you hear about someone selling their business at the high end of the multiple range, I’m not surprised when it gets other owners thinking about opening up that window.

The conversations I have with owners about a potential sale usually begin with what I like to call the “head” of the deal. It’s typically a deep dive into the due diligence, financial, legal and tax implications to figure out if a potential divestiture is even in the cards. If it is, then all efforts are directed at getting the maximum value from the sale.

It’s detailed. It’s technical. It’s specialized. And, as tax professionals, my colleagues and I—working with our Corporate Finance team, who ultimately drive the overall process—are all in.

Let’s be frank: as a business owner, you’ve likely spent a lifetime building up your business and making sure it’s a success. It’s what you know. But with a sale, you’re about to step onto new ground. There are no employees to lead or customers to serve. Perhaps your family’s legacy is being left behind. And suddenly the value you’ve created in your business has morphed into a large cash box.

A lot of strategic, business, financial and emotional decisions have brought you to this point. How will you and your family manage the sudden liquid wealth? Can the family continue to be tight-knit without a legacy business to support it? And where do you go from here?

In other words, it’s not just the sale, but what comes next for the family that also matters.

For me, what happens in the family and for the family throughout the entire divestiture process is the “heart” of the deal. Along with all the legal, financial and tax details, it takes some mastery to address the dynamics of the family as well.

Straight to the heart
I’ve been fortunate to have a front row seat to important family discussions about decisions made before, during and after deals.

Some, but not all, of these conversations go beyond the traditional due diligence, legal and financial decisions about the sale that you’d expect. They’re also diving into the emotional and psychological impact that some decisions can have on family members’ personal goals and their relationships with one another.

Here's one small example from a recent experience I had with a principal shareholder who’s preparing to sell his company. The company has high-value real estate assets, but the family insists these holdings are untouchable. They will not—in fact they cannot—be included in the deal. He explained that his parents started their business with these holdings, and that their legacy is the heartbeat of the family.

Choices like this may not always seem logical, but they do reveal what’s truly important to the owners.

If the legacy business is divested, how will you deal with the emotional ties to the business that have helped keep the family together? What if a sibling or some of the children don’t want to sell the business—what impact might that have on family relationships? Is it possible for the family to keep some equity and continue to play an active role? And how will the family’s new “liquid” wealth be divided (if at all) and managed?

As far as I’m concerned, understanding the business and personal objectives of the owners and their families is always step one in good divestiture planning.

All together now
As my colleague Nicole Osolinsky discussed in a blog post of her own about family business longevity, sudden new wealth from the sale of a business or a large inheritance often creates a whole new set of challenges for managing and protecting a family’s wealth. Nicole and I were talking recently, and she made an excellent point: “When a business is sold, there’s a different sense of stewardship in enterprising families,” she said. “Even though their net worth may be the same after the sale, families that suddenly become cash rich (but ‘asset poor’) are in a very different space psychologically and emotionally. It’s important to help them recognize this reality—even at the pre-sale planning stage—and address their questions and concerns throughout the entire sale process to prepare them for life after the deal.”

I couldn’t agree more. Helping to manage and protect the family’s wealth is a natural role for family offices to play following the sale of a business. I’m fortunate to have colleagues like Nicole and other members of our KPMG Family Office team who aren’t waiting for the deal to close. Instead, they’re helping to address the questions, concerns and dynamics of many families throughout the entire divestiture process.

In light of this, I’m personally exploring more ways to integrate family office thinking and capabilities into divestiture planning. It just makes sense to me to deal with the family’s priorities, plans and concerns right up front—not as an afterthought when the deal is closed.

Are you with me? Please reach out and let me know what you think about the importance of mastering not just the head but also the heart of the deal.