An outlook for 2013 – on family owned companies

With the start of 2013 we look forward to a new year full of opportunities. We have seen a turbulent year in 2012, the effects of these challenging times were especially noticeable for companies in the industrial market and construction.

To consider how to anticipate the opportunities and challenges 2013 will bring, organizations should focus on the long term and formulate strategy accordingly. Companies that typically have a long term focus are family owned businesses. Moreover, these companies are generally regarded as more stable, since these companies focus on continuity of the company with the intention of passing on the company to a new generation. Therefore, family owned companies are generally conservatively financed, embody a stabile culture and loyalty towards employees and great commitment of the family members.

General outlook

A study by Van Lanschot Bank, a Dutch business and private bank dedicated to family owned businesses, conducted with 256 CEOs (owning the majority of shares) of family owned businesses shows that they anticipate a challenging 2013. However, despite the negative outlook, the CEOs are more optimistic than they were at the beginning of 2012.
Figure 1 - An outlook for 2013 - on family owned companies - BlueMind Corporate FinanceThe CEOs expect that their companies will do equally well in 2013. Their perception on the Dutch economy in general and the outlook for the industry their companies are active in have improved over the last 12 months1.

The sentiments of these 256 CEOs are confirmed by the most recent inquiry under members of the procurement managers. The results of this inquiry, regarded as important indicator of economic performance, show that the economic decline has come to a standstill2.

Topics of concern

With the perceived economic downturn coming to a hold, the most important topics these CEOs of family owned businesses face, change as well. Whereas 68% of the CEOs where worried about price development in the beginning of 2012, the most concerned issue by the end of 2012 is debtors risk. Price development still ranks high on the CEO’s agenda (59% of the CEOs are worried about the development of prices), together with law & regulations issues and overhead costs the company carries.
In addition, especially larger family owned businesses (>50 employees) face issues on employee matters. Particularly maintaining key personnel, and reducing absenteeism are topics mentioned often as source of worry.Figure 2 - An outlook for 2013 - on family owned companies - BlueMind Corporate Finance

Looking at the main goals family owned companies set for themselves, continuity is the most important purpose of the company for the majority shareholding CEOs. Close second are profits and return on equity, followed by the aspiration to grow/expand. The importance of growth has declined over the past period, whereas the drive for continuity and offering employment have increased.
The results clearly show the long term strategy family owned companies pursue; strategies are increasingly focused on continuity and creating employment for people. Simultaneously, the effects of the harsh economic times are visible, as the importance of innovation and societal engagement are declining3.

Internationalization

Of the family owned businesses that were included in the study, almost 50% is internationally active. Another 12% considers to start exporting their products and services, fueled by the tough domestic market conditions.
Many family owned companies are not fully utilizing their potential, economically viable options are ignored or unobserved. The CEO’s responses suggest that companies that are exporting are also more often focusing on growth. These are the companies that are performing better, and have remarkably often a CEO/majority shareholder that has not been with the company for a long time (less than 5 years). The results show that expanding into new markets significantly attributes to reaching several of the company’s goals, better performing companies have a longer lifespan and thus increase continuity, and exporting to new markets creates more jobs and employment potential of these companies. A cross border acquisition is often a first step in creating a foothold in a new international market.

Continuity and mergers & acquisitions

A large part of all companies in the Benelux are family owned companies. An enormous shift in demographic composition is anticipated, and we will see the ownership in many family owned businesses handed over to a new generation. In 2012, 30% of the family owned businesses interviewed4 was at that time undertaking the succession, and another 26% was planning to do so within a few years.
Due to economic circumstances, valuations will be lower than a few years ago. Over 65% of the interviewed families anticipate to the lower valuations and shift towards succession constructions that have additional tax benefits.

BlueMind foresees that in the coming years, family owned companies will increasingly engage in M&A transactions. First, we expect that a growing amount of businesses will be succeeded from senior to junior or existing management. Its highly recommended to involve a M&A advisor in these successions. Due to valuation issues, and advanced financing constructions, M&A advisors add tremendous value in these transactions.
Secondly, we foresee increasing international expansion of these family owned businesses. Setting up new export locations and acquiring local production companies and expertise to run these operations will also strongly benefit from the international expertise.

Jan Willem Jonkman
Jan Willem Jonkman
Managing Partner
BlueMind Corporate Finance

1: Van Lanschot Familiebedrijven Barometer – Van Lanschot Bank – December 2012
2: http://www.nevi.nl/pmi
3: Van Lanschot Familiebedrijven Barometer – Van Lanschot Bank – December 2012
4: Uitkomsten onderzoek bedrijfsoverdracht familiebedrijven – KPMG – June 2012