For many family businesses, ownership structures evolve over time rather than being designed for transaction outcomes. Minority interests, joint ventures, associates or partially owned subsidiaries often reflect pragmatic decisions, bringing in partners, sharing risk, or preserving long‑term relationships. Yet when a family business enters a transaction, these structures can quietly introduce material pricing risk if not addressed carefully in the Sale and Purchase Agreement (SPA), as explored in a recent KPMG insight article on SPA pricing mechanics.
Accounting consolidation vs. economic reality
An important but frequently overlooked point is that accounting consolidation does not equal economic ownership. While group accounts prepared under IFRS may present a coherent picture, the economic reality underpinning partially owned entities can diverge materially from what ends up feeding into purchase price calculations. For family owners, this distinction is crucial because it determines whether value transfers fairly, or unintentionally, at completion.
In most family transactions, headline valuation discussions focus on EBITDA and ownership percentages. Sellers and buyers generally adjust EBITDA to reflect economic ownership. However, far less attention is often paid to how balance‑sheet items flow through pricing mechanisms, particularly in locked‑box EV‑to‑equity bridges or completion accounts. This is where mismatches can arise.
Where pricing mismatches typically arise
Associates and joint ventures usually pose fewer problems. They typically sit as single‑line items in fixed assets and fall outside net debt and working capital calculations. In these cases, accounting and valuation treatment are broadly aligned. However, issues begin to surface with joint operations and, more significantly, non‑wholly owned subsidiaries.
Subsidiaries are consolidated line‑by‑line under IFRS, meaning 100% of their assets and liabilities appear in group accounts, even when the family owns less than 100%. Unless explicitly adjusted in the SPA, this can result in 100% of the subsidiary’s working capital and net debt being reflected in pricing mechanics, even though the family is only economically entitled to a proportion of that balance. The result may be an over‑ or understatement of equity value depending on the subsidiary’s balance‑sheet profile.
Why simple NCI adjustments are often inadequate
For family businesses, this risk is often amplified by complexity rather than intent. Many groups have grown with layered ownership structures, different shareholder agreements, and varying funding arrangements across entities. These are manageable in day‑to‑day operations, but they become far more consequential at the point of signing an SPA.
A common misconception is that removing or adjusting for non‑controlling interests (NCI) solves the problem. In practice, NCI is calculated on the full balance sheet and includes items, such as fixed assets, that are typically excluded from pricing adjustments. Simply stripping out NCI does not necessarily align the pricing mechanics with economic reality.
Governance, intent and protecting family value
From the above, a key principle emerges: consistency and intent must be agreed upfront. Whether parties decide to apply proportionate ownership to balance‑sheet items or to include 100% on the basis that the parent ultimately funds the subsidiary, the critical point is that the approach should be consciously chosen, clearly drafted and applied consistently. This is particularly important in completion accounts mechanisms, where ambiguity can translate directly into post‑completion disputes.
For family owners, this is not just a technical issue, but a governance one. Transactions often occur against a backdrop of succession planning, liquidity events or partial exits. Unexpected pricing outcomes at completion can undermine trust between family members, management and counterparties at precisely the wrong moment. What feels like an accounting surprise can quickly become a relational problem.
Implications for family businesses
Certain practical recommendations are especially relevant to families. Understanding group structure early, mapping ownership precisely, and stress‑testing how pricing mechanics behave under different scenarios should be part of transaction preparation, not left to late‑stage drafting. This is equally true whether the family is selling, buying, or bringing in a minority partner.
Ultimately, SPA pricing mechanics should reflect the economic substance of the deal, not just its accounting form. For family businesses, where ownership, control and value are deeply intertwined, getting this right is fundamental to protecting legacy as well as price.
If you are contemplating a transaction and would like to discuss any aspect of the above, do get in touch. Our teams of transaction and accounting experts stand ready to advise family businesses to navigate these complex issues, protecting value and helping achieve desired outcomes.
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