How Family Businesses Do M&A Differently

Over the years we’ve had a lot of experience working with family-owned businesses.

Whether it’s on the sell-side or the buy-side of a transaction, we know that family businesses see mergers and acquisitions differently than other types of firms, making their approach to the process unique.

The peculiarities of how family businesses handle M&A are important for both the advisor and for the business owners themselves to recognize so that they can successfully plan and execute a transaction together.


The most important factor to consider is that families are attached to their businesses. This attachment is not only emotional but financial.

Both principal owners and other family members who work for the business are usually directly involved in the business’ day-to-day operations and resource management. It is the place of their daily labor, the source of their income, and the business usually constitutes the vast majority of the owner’s net-worth.

Because of this, family businesses usually have to consider the role the business may play in the future of their families. Most often the priority of family businesses is to ensure that the business will be passed from one generation to the next, ensuring the wealth and stability of children and grandchildren. However, even if intergenerational succession is not in the cards, legacy is never a negligible factor and securing a high valuation for an eventual sale is necessary for retirement.

Low-Risk Investing

Due to having so much of their wealth tied up in the business and to ensure that the family retains control of the business, low-risk investments that avoid share dilution are typically the preference of family-business owners.

Common options for obtaining capital for investments, ownership transition, or other needs include non-diluting securities such as debt, dividend recapitalization, and cash. Issuing of new equity is often avoided since it inherently involves bringing in outside investors.

However, this desire to avoid share dilution and willingness to take on debt can cause cashflow issues. Running a highly leveraged business can be especially worrisome if business owners don’t diversify. That’s why we advise many of our family-owned business clients to look at cross-industry acquisitions if they are seeking investment opportunities and why so many of them find the suggestion very attractive.

Business Diversification

Although family businesses don’t make acquisitions as often as non-family businesses, when done right it’s a strategy with high-growth potential. Furthermore, a focus on cross-industry acquisitions gives both the business and the family diversification neither would otherwise have while retaining a capital structure that keeps the family in control.

Long-Term View

We’ve noticed that our family-business clients are resolute in keeping the long-term in mind when approaching M&A. This enables us both to make the best of their investments by taking care to make sure they are sustainable rather than myopic transactions aimed solely at increasing short-term cashflow.

Planning Ahead

One mistake many family businesses make is neglecting to plan their transactions ahead of time. Whether it’s an acquisition, a recapitalization, or even their own sale to make way for a retirement, the demands of running a business often overcome the necessity to plan.

However, planning is essential because of the far-reaching economic effects transactions can have on a family. We’ve helped many family-businesses plan and execute their business transactions for over 20 years.

If you’re a family-business owner and you’re considering making an investment, looking for ways to recapitalize, or exploring retirement, then contact us for a confidential discussion around your potential options.

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