Going public for a family business

The founder’s company is not the same as that of brothers or cousins, let alone first cousins. As generations pass, the law of entropy causes increasing disunity and divergent views unless action is taken to preserve unity. DNA does not guarantee the transfer of business skills, Therefore, if the business grows and they want to continue the business, it is in the interest of the owner family to outsource the management or even the government as a better guarantee of the professionalism of both. The ideal is this: “The company does not need the family, nor the family needs the company.”

Liquidity or new resources

When the company reaches a certain size, issues such as externalizing some of the property, entering a fund or going public may be considered. It may be one of the options to consider when planning generational change. Listing the family business is the maximum expression of its professionalization. Independent management structures (board of directors) and maximum transparency are required. Going public provides liquidity to the shares, simplify the always complex determination of the valueand provides access to a market for trading. Both may have different objectivity and convenience depending on whether they are listed on the permanent market or the alternative market.

Listing can occur simply by issuing existing shares to provide liquidity or by issuing new shares to raise funds. An important question that a business family must ask itself when going public is what percentage of capital to go public with, what is technically known as a public offering. At Inditex, this rate is over 25%; At Cementos Molins it is over 10%. If it exceeds 50 percent, the family will risk losing control, but there are also business families, such as pharmacist Reig Jofre, who plan to remain in the minority and hold the reins. Some work families They don’t quote because of this fear.This is the case when Corporación Alimentaria Guissona decided to halt the IPO process (although the Alsinas claim that it is not a family business).

A listed family business is not the same as an unlisted family business; A board or general meeting with your father, aunts and cousins ​​is not the same without family members. The listed company has a shorter-term vision of profitability and risk taking, compared to the long-term, continuity and prudence typical of family businesses. Administrator has more authority, the more information is shared, the clearer the goals. Decision processes are in principle more professional and rational (“not everything that glitters is gold”). There are many shareholders and they have the easiest way out. There is a greater tendency towards debt and dividends compared to the self-financing and reinvestment that characterizes family businesses. The duration of the positions is shorter than the “eternal” family positions.

emotional connection

Research by Credit Suisse and Thomson Reuters shows that publicly traded family businesses are consistently more profitable than non-family businesses. Of course, as the Enron case reminds us, family control only stops the excesses into which investment can fall. Listing the business family that wants to continue owning the company in the long term must also take into account the emotional attachment and pride of belonging of the shareholders, so that the shareholders also want to continue to own a company that is profitable and has a future. .

However, the majority of family businesses They don’t even have the size to quote Sunday secondary. So what can they learn from those in the stock market? Good governance practices leading to avoidance of endogamy, nepotism, secrecy, short-termism and confusion (over capacity and ownership, cash after dinner with the council).

Puig’s founder told one of his sons: “There are five important stages in life: learning to do, doing, teaching to do, doing and stopping doing.” Maybe they will reach the fifth stage as a business family with the IPO.