Family businesses stay and fight but the winds of change are blowing

A quick run-down of the jobs listed on Paul Keogh’s CV suggests he is guided by the idea that variety is the spice of life. Having delivered beer in Manhattan, been a copywriter at JCB, counted Luciano Parvarotti among his clients and sat on the board of Sunderland Football Club, the breadth of Keogh’s career experience as interesting as his anecdotes.

He has also added ‘writer’ to the list as author of The Family Business Book, a distillation of his wide-ranging commercial education.

Family business is facing a number of challenges in 2023, Keogh explains, not least the delicate area of succession planning. “In some countries, it is as low as 5 per cent of next-generation family members who have expressed an interest in running the family business,” he says. “Families themselves are changing and the family unit is different to what it was a hundred years ago.”

These days people are better educated, more internationally mobile and less likely to stay in one career for life – realities that have consequences for the traditional family unit. Other factors do too, including families meeting up less often, more marital breakdown, blended families on the rise and people becoming parents later in life with fewer children per household.

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“Family unity may be an increasing challenge and this will have an effect on the family unit,” says Keogh. “The make-up of entrepreneurs in a decade’s time may well be very different to today and will definitely be more tech-driven. Entrepreneurs today seem more willing to sell their business and reinvent themselves and there may not be the same emotional attachment to the family business as there was to, say, the family farm.”

All families are different – some close, others distant – but an increasing number don’t adhere to once-conventional patterns, which can cast doubt over the future of family businesses.

“That said, there will be opportunities for family business as well,” says Keogh. “Families are renowned for their resilience and agility. Many will grow from their traditional base to become global players across many industries. Family businesses can react quickly to opportunities – and there will always be opportunities, in good times and bad.”

Higher levels of support and advice available now than in the past may benefit family businesses. However, Keogh says: “What may impact the future of family businesses in Ireland is Government policy towards family businesses. All sorts of tax breaks and incentives are given to foreign direct investment but Government policy does not favour family business succession.”

Family businesses will face a number of challenges in the future, he says, including digital adaptation, globalisation and a drive towards greater sustainability – common factors facing all businesses. But the real challenges will lie within the family themselves, Keogh says. “Will the family values be the same for the next generation? Will families have the same work ethic? Will families be able to manage the turbulent times ahead? You can’t stop the waves but you can learn to surf. Overall, family members need to communicate a lot more with each other and make sure that their visions of the world are aligned.”

While Covid-19 had the same impact on family enterprises as it did on all business, there were some differences. Many family companies went to great lengths to protect their employees and not just themselves.

“Covid-19 had an impact on family members. Some that weren’t in the business were stuck at home and either consciously or subconsciously got involved with the family business. It also helped families conduct longer conversations about the business, risk/reward and a general self-assessment of life as a family,” says Keogh.

The fact that there are 225,000 people in higher education in any one year means that a very high percentage of the population gets a third-level education and this is at the expense of trades

—  Paul Keogh

Despite the proven resilience of family businesses down the years, keeping a family enterprise intact through the generations can be more stressful than for other types of company.

“Stress in family businesses is greater than other businesses because you are mixing two complex worlds – the world of that family and the world of business,” says Keogh. “There can be stresses within the family unit – nothing to do with the business – that filter into the business, such as divorce.”

He adds that the pub and hospitality sectors have traditionally accounted for a significant portion of Irish family businesses – but such enterprises face unique challenges in the modern economy.

“The pub and hospitality businesses, as well as construction, farming and many service-type businesses, have been the bedrock of the economy, and were started up in every village in Ireland. What they all have in common is that they are demanding work environments,” says Keogh.

“Young people today are better educated and maybe over-educated. The fact that there are 225,000 people in higher education in any one year means that a very high percentage of the population gets a third-level education and this is at the expense of trades as they were once called – the bar trade, the hotel trade etc. The next generation may not want to work unsociable hours and with their degrees they can now travel the world.”

Keogh believes the next decade will be key for family businesses, not just in Ireland but all over the world.

“Their impact will remain the same, contributing over 70 per cent to global GDP. They will become stronger in emerging markets and they might slip somewhat in developed countries as developments such as robotics become more widespread. A country like America, where 90 per cent of businesses are family-owned or controlled, may slip to 75 per cent by the end of the decade but their contribution will still be enormous.”

In conclusion, Keogh says: “It is time we all recognised the importance of family businesses to the Irish economy in good times and especially the bad times. They don’t pack up and move to a new jurisdiction – they stay and fight.”

To exit or not to exit?

Business owners can exit or de-risk in a variety of ways, says David O’Kelly, partner and head of M&A at KPMG. With family businesses, a full or partial exit decision is typically deeply personal and may have an impact on the whole family.

“When talking to family businesses, we like to spend time with them to fully understand their objectives so that we can propose the options that work best for their situation – it is never one size fits all. One option we see with increasing frequency is a partial sale to private equity,” he says.

“Private equity funds raise money from institutions such as pension funds to invest in alternative assets, including successful family businesses. When these funds invest in private businesses, their goal is to help develop the business so everyone involved benefits,” O’Kelly says.

Private equity funds usually make investments for three to seven years, after which time the company is sold or participates in a new private equity deal. New investors might bring additional capital or contacts for the next stage of growth in the business.

The relationship with the prospective investor is critical as the transaction is just the start of a journey. “We often find that the chemistry that works well with one company is not optimal in another,” says O’Kelly. “As a result, a lot of time and effort is put into making sure the parties are a good match before a deal concludes. The key to successful private equity deals is alignment. This means the key senior management team of the business is clearly incentivised to achieve the investment goals – typically a successful exit.”

M&A transactions are demanding and can place significant strain on a business. “To successfully complete a deal, it is critical that a professional team is assembled that can navigate the various pitfalls and negotiate the best possible outcome,” says O’Kelly.