Why does this matter
“While selling a family business and planning for succession is emotional, invariably creating stress at work which likely creeps into the family sprinkling it with stress as well. And that’s when you need to lean on your advisers.”
This article first appeared in (Standard Newspaper, 18 April 2018)
Family-owned enterprises are those where one family owns 50-plus per cent of the business. This type of ownership structure accounts for upwards of 80 per cent of all companies worldwide. As a result, family-owned businesses are an essential backbone of the country’s economy.
From time to time, though, we’ll hear of these family-owned businesses changing hands. While there are those who’ll throw out their congratulations, there are those who’ll be disappointed about the sale, and think the ‘family tradition is lost’.
“Most recently, we’ve seen regional retail giant Nakumatt Holdings, run by the Atul Shah family, and Makini Schools, run by the Pius Okelo family, give up the reins to their businesses for vastly different reasons.”
A family-owned business, or any other business for that matter, can only be sustainable if the assets are used in a manner that’s productive, and returns value and satisfaction to the various stakeholders and the family.
The moment this stops being achieved, the family should consider selling the business to others who could do a better job with it, and allow the family to focus on other activities. The game changer, however, is in the timing of the decision to sell!
Founded in 1978 by Dr Mary Okelo and her late husband Dr Pius Okelo, the family-owned Makini School has eight schools on four campuses in Nairobi and Kisumu, with 3,200 students from kindergarten to Grade 12.
Well-known in the region for its academic performance, the school recently changed hands for an undisclosed amount, though speculation suggests a 10-figure sum may have tipped the sale to the partnership of ADvTECH Ltd and Scholé Ltd.
ADvTECH Group, Africa’s largest private investor in education, with 100 schools and colleges in South Africa and Botswana, is listed on the Johannesburg Stock Exchange. While Scholé has been operating in Africa since 2012, operating schools in Zambia and Uganda.
Families that grow their business to a sellable size should consider selling it at the right time for two reasons.
While all businesses have a life-cycle, a business that’s competitive at one stage of an industry could need a vastly different scale in management style and skill, technology and capital to compete well in another stage of the ‘game’.
If a family wants to remain in a particular business, or game, over several decades, it needs to have the necessary talent, adequate financial resources and a certain measure of flexibility. When the business stops adapting to its industry it dies.
Families naturally change over decades and generations in terms of their skills and interest. And while the founder has the passion and skill required at the start, this may not be the case with the next generation. Besides, some families grow apart from their businesses and become unable or unwilling to support the enterprise as owners or business leaders.
Some people see this as a family ‘sin’, but it isn’t. The sin is when family members become lazy, unproductive and completely reliant on others for their financial support. The worst situation is to build something valuable and watch its value vaporise because the next generation is unable to sustain its growth. And remember, even if the family is no longer a good fit with the business, it could still be successful in other activities including another business.
Numerous cases demonstrate that families that sell their business often start or buy another business and get back into another game. As Kenyan family-owned enterprises become more attractive, the scene should get more interesting.
FAMILY Charter – the progressive roadmap to family and business prosperity