Structuring Acquisitions of Family-Owned Businesses: Valuation, Due Diligence, Deal Structure, Operational Transition

Description

Family-owned businesses, accounting for over 60 percent of jobs in the U.S., are a crucial target for both strategic and financial buyers. However, mergers and acquisitions of family-owned businesses are complicated for a variety of reasons, including valuation challenges, tax and estate planning considerations, internal governance, and potential issues concerning a generational transfer of the business. An acquisition can be a new and challenging undertaking for existing owners, and management may have an emotional attachment to the company.

Counsel representing buyers of family-owned businesses should carefully conduct due diligence to identify potential risks and liabilities and seek to mitigate those risks and liabilities or "price them into the deal." Counsel should also give management deal-side support so that it can continue to run the business and meet any projections during the sales process provided to potential buyers.

When structuring the sale of a family-owned business, counsel must evaluate whether a stock purchase or asset purchase is the most prudent option, considering tax and other financial impacts. Counsel can also advise how to structure any retained ownership (often required by financial buyers) in the business following the sale. Counsel must also develop a strategy for using earnouts, "seller paper," "rollover equity," or other methods to bridge valuation gaps or to provide needed cash to fund the purchase price.

Listen as our authoritative panel discusses best practices for managing valuation, due diligence, deal structure, tax, estate planning, and other challenges in acquisitions of family-owned businesses.