5 juli 2018

Wave of sales in family-owned companies

A wave of sales is happening among family business in the Netherlands. The expectations of this day and age are too high for many entrepreneurs, nearly three out of four are actively thinking about selling their company. Investment firms are loaded and are falling over each other to buy these family-owned companies. Experts warn that the Dutch economy could become vulnerable when the stable spine of family-owned companies crumbles. 

A selection of the news of the previous weeks: Brothers Eric and Robert Zandbergen sold their bacon factory, a meat processing company founded by their father in 1948. MerkGoed, the investment firm that also owns Ranja and Benbits, becomes the new owner of Nomad. The producer of sleeping bags, tents and backpacks was founded forty years ago by Bob Kooijmans and is now run by his daughter Anouk. The Limburg family Van Enckevort found a new owner for their thirteen technical wholesale locations in tool trader Polvo. 

“We can speak of a genuine seller’s market for family businesses,” says Ferry Nahon, a partner at Marktlink, a consultancy firm for mergers and acquisitions in the SME-segment. “We can think of several reasons for this. In the first place, you could say the market is playing catch-up. The mergers and acquisitions market was really bad between 2009 and 2013, far fewer than average companies were sold during that period.”

That catch-up is getting a good push forward from the period of economic prosperity we are in currently. “Many companies are being offered to us,” says Willem Kamp, managing director at Berk Partners, the investment fund that is reinvesting the capital of Ben Pon, preferably into family-owned companies. “That is also caused by the good results of the last few years, the period of time before that did not show those good results.” 

Lots of equity in buyout funds

 Paul Schram, head of mergers and acquisitions at Rabobank, chalks this up to investment firms. “Private equity firms have raised lots of money from investors who saw little in averagely yielding fixed-income securities. Besides the liquidity of private equity, the market for acquisition financing is good as well. The climate for sales is favourable. It’s not strange that a growing number of family-owned companies are thinking about selling.” 

“The combination of a higher valuation of companies and the increased attention of investment funds is what makes it very interesting to sell your company now,” says Nahon. “You see this in the number of potential buyers as well, the number is very high at the moment. It is not an exception that we’re at the table with more than ten interested buyers.” 

That so many families are selling their companies after decades is not completely without risk. “Family-owned companies have always been a constant within our economy,” Anita van Gils, lector at the Windesheim University of Applied Sciences and connected to the national expertise centre for family-owned companies, explains. “Family-owned companies are known for being good employers. They have a relatively low staff turnover, they offer a kind of employment-security. If companies like that become the property of foreign investors it is not certain those employment opportunities will remain in the Netherlands.” 

Maarten Vijverberg (Clifton Finance) often acts as a strategic advisor for family-owned companies. He endorses that worry. “Private equity, that will only be shareholder temporarily, are currently falling over themselves during bidding and this leads to a relatively high pressure from the get-go to earn that high price back. That’s different from the usual dynamic you see in family-owned companies. The Dutch economy will likely be more competitive because of this, but it will also be more vulnerable in times of crises.” 

According to the latest numbers from the Center for Big Data Statistics (CBS), the Netherlands has approximately 278,000 family-owned companies. These companies make up for 29% of the total amount of jobs and a turnover of €343 billion, which is 27% of the total turnover of all companies, excluding financial service providers in the Netherlands. 

Young people don’t want to take over the family business

A known phenomenon is the lack of successors. There are either no children, or the children don’t want to take ownership of the family business. Van Gils: “Many owners of family companies are over fifty years old. If there is a potential successor then they are often not competent enough to run the company or they just don’t want to. The mentality of the younger generation is different. This generation does not want to carry the financial risks or dedicate the rest of their lives to work.” Vijverberg blames that on the previous crisis. “Children saw in their parents that a crisis can be very difficult emotionally.” He sees this in several sectors among which are construction, retail, and fishing. 

An acquisition does not have to end badly for family-owned companies. Often it’s an incentive for further growth. “Owners are not always good managers,” says Nahon of Marktlink. “Especially in the event of an acquisition by a private equity fund an outside manager is often installed to provide a new impulse.” If a company is bought by someone in the same sector then an expanded product portfolio or distribution network can cause growth. 

Schram adds another argument into the mix. “Large companies often have someone employed that focuses on the digital strategy. Family-owned companies generally lack scale and depth for that. Private equity funds have the necessary expertise to guide a digital transformation.” 

 

 

This article originally appeared in the Dutch newspaper ‘De Telegraaf’  on June 16, 2018. 

Marktlink