Do IPOs fit the DNA of family business?

Martin SteinbachDr. Martin Steinbach, EY IPO Leader EMEIA

Sufficient funds are a prerequisite for every growing business. It takes a considerable amount of money to develop new products, tap into new markets and sectors, and expand resources.

That is why family businesses must think about their strategic options for accessing funding.

For family businesses, an IPO is one of the five main strategic options for raising capital, along with M&A, private equity, management buy-in (or buy-out) and self-financing through the family or the business.

When they evaluate these options, family business owners, unlike other entrepreneurs, must take into consideration both business and family obligations. IPO 1

When seeking access to increased capital, family businesses must carefully consider each of these options to see how they match up with the goals of the family and business.

And though specific conditions at each family-owned business differ widely, IPOs have a number of benefits that all family businesses should seriously consider.

More than just money

Each family-owned business is unique. But it is in the DNA of exceptionally successful family-owned businesses to manage eight key areas particularly well.

IPO 2

An IPO can “improve” a family business’s DNA by helping it to improve its management of the areas crucial to success. IPOs achieve this by helping family businesses carry out a number of vital tasks:

  • Recruiting senior executives as part of management succession
  • Formalizing relationships between the management board, supervisory board and (family) shareholders
  • Professionalizing structures
  • Acquiring and retaining talent via employee share and option schemes
  • Diversifying the family’s assets
  • Preserving the corporate culture
  • Tapping into new, long-term sources of finance for stable growth
  • Gaining greater entrepreneurial freedom through a diversified shareholder structure

What does an IPO involve?

If the family decides to carry out an IPO, new structures and processes will need to be developed to comply with regulatory requirements. Managers with experience in capital markets may need to be appointed from outside the family.

And a family charter should be drawn up for family members, to sit alongside the respective corporate governance codes.

To make the transition from private to listed company in the public spotlight, family businesses will need to undergo a serious transformation process. The scope of the required change is usually best assessed in collaboration with trusted advisors in an IPO and strategic options readiness assessment.

By working with experts and following best practices, family businesses can give themselves every chance of conducting a successful IPO.

An IPO is a valid strategic option, which can contribute to the success of family businesses. Whether this funding route is the right choice for a specific family business will depend on its own DNA and will need to be assessed carefully, case by case.

EGY no.: CY0872

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