Family business: Change is a constant for every small firm

Nothing in business stays the same, as bestselling author Paul Keogh and David O’Kelly of KPMG explain

Paul Keogh, author of ‘The Family Business Book’, brings significant business life experience to the advice he offers family business owners.

That old saying — ‘variety is the spice of life’ — applies with distinction in the diversity of jobs accumulated on the CV of Paul Keogh.

Having delivered beer in Manhattan, having been a copywriter at JCB, having counted Luciano Parvarotti amongst his clients and sat on the board of Sunderland Football Club, Paul Keogh has a career depth of experience as interesting as his anecdotes.

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

Family business is facing a number of challenges in 2023, he explains, not least the delicate area of succession planning.

U2 lead singer Bono bows to Luciano Pavarotti at the Novi Sad Park in Modena, Italy, in 2003. Paul Keogh counts the Italian tenor among his many clients in his colourful business life. Photo: Alberto Pellaschiar / AP Photo

"In some countries, it is as low as 5% of next generation family members who have expressed an interest in running the family business. Families themselves are changing, and the family unit is different to what it was a hundred years ago."

Family members are better educated, are more global and less likely to stay in one career for life — a reality laden with consequences for the traditional family unit. The factors impacting this change in the future of the family unit include families meeting less often as a unit, marriage breakdown on the rise, blended families on the increase and people having children later in life with fewer children per household.

“Family unity may be an increasing challenge and this will have an effect on the family unit. 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 are close, others are distant, but an increasing amount are dysfunctional — this is not good for the future of family businesses.

"That said, there will be opportunities for family business as well," Paul believes. "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."

The fact of having more support for family businesses today in terms of advice and guidance will benefit: "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, including digital adaptation, globalisation and drive towards greater sustainability — common factors facing all businesses.

"The real challenges will lie within the family themselves. 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 and make sure that their vision of the world are aligned."

While Covid-19 had the same impact on family businesses as it did on all businesses, there were some differences. Many family businesses went to great lengths to protect all 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."

Despite the proven resilience of family businesses down the years, keeping a family enterprise intact through the generations is more stressful than that encountered by other companies.

"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. 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 which have unique challenges in the modern economy.

"The pub and hospitality businesses, as well as construction, farming and many service type business, have been the bedrock of the economy, and which were started up in every village in Ireland. What they all have in common is that they are demanding work environments. Young people today are better educated and maybe over-educated.

"Given the fact that there are 225,000 people in higher education in any one year means that a very high percentage of the population get 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."

Paul 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% 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% of American businesses are family-owned or controlled may slip to 75% by the end of the decade but their contribution will still be enormous."

In conclusion, Paul 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? — It is never one-size-fits-all 

There are a variety of ways for business owners to exit or de-risk, says David O’Kelly, partner and head of M&A in KPMG.

With family businesses, a full or partial exit decision is typically deeply personal and may have an impact on the whole family.

David O’Kelly, partner and head of M&A in KPMG, says no two businesses are the same, so the advice must be unique to the client’s situation and history.

“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.”

 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. 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.”