We recently had a discussion amongst the partners here at CKS Advisors about everything we do for our clients. We touched on everything from raising debt and equity financing, strategic value assessments and accelerations, turnarounds and workouts, mergers and acquisitions and overall business value creation.
But one of the topics that truly struck home with all of us is one that sometimes gets overlooked: family business and succession planning. Many times, it’s something that businesses just don’t think about in the present and when they ultimately do decide to weigh the possibilities, oftentimes it’s too late to effectively pass a business on to the next generation.
I’m reminded of a situation not too many years ago where a family business that had been an institution for decades decided that selling was a more favorable proposition than trying to structure a succession.
For more than 50 years, this business had been a model in its industry, starting with a modest investment of about $300,000 and growing to a present value of about $350M. At the time of the decision to sell, it was the last of the family-owned businesses in its industry, and the brother-sister team at the helm recognized that the changing business landscape would grow to favor larger groups and corporations over single family ownership.
The decision to sell was simply pragmatic. Both majority owners (the brother and sister) had children of their own to whom they could have passed the business, but a lengthy strategic assessment of a succession proposition proved that everyone would realize maximum value by selling.
The business? The Los Angeles Dodgers. The last remaining family-owned Major League Baseball franchise sold its business in 1998 for $350M, the highest price ever paid for a sports franchise at the time. When asked about the decision to sell, Peter O’Malley said, “It’s smart to plan for the next generation. That’s probably the best reason.”
Interestingly, O’Malley returned to baseball ownership in 2012 when he assembled a group to purchase the San Diego Padres for $800M. While the Dodgers was his family business for over 50 years, O’Malley knew that generation family ownership could not survive in today’s sports industry.
There’s no doubt that the Los Angeles Dodgers and the O’Malley family worked diligently with a team of advisors to come to their decision, and it is one that I like to hold up as an example of excellent family financial planing. I’m sure it was not an easy decision to make, but in terms of value creation for the family, it was the right call.
It’s never too early to start thinking about the future of your business: don’t wait until your retirement party to think about the next generation. Let CKS Advisors help you weigh your options and navigate a family business transition to realize maximum value for everybody involved.
This post published April, 2014 by Dennis J. Cornelius, Managing Director CKS Advisors LLC – firstname.lastname@example.org