Rothstein Kass Releases 'Heading for the Exits' a Two-Part Survey Report on Preparing to Sell a Family Business

Latest Research Report by National Accounting and Advisory Services Firm Examines Motivations / Impediments to Potential Sale

Over a Third of Businesses Exploring Sale Have Never Performed a Formal Business Valuation

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Rothstein Kass

Apr 14, 2010, 09:23 ET

NEW YORK, April 14 /PRNewswire/ -- Rothstein Kass (www.rkco.com), an international accounting and advisory services firm, today introduced "Heading for the Exits: Preparing for the Sale of a Family Business," a survey report that evaluates the near- and intermediate-term outlook for family business owners considering the sale of a majority stake. The two-part report includes the findings of a survey of 382 C-level executives of first-generation, family-owned enterprises that were actively considering sale of a majority stake in their companies. "Part One: Best Laid Plans" addresses the motivations and concerns associated with selling a family business and finds that inaccurate or outdated business valuations can make it more difficult to determine if a proposed sale will yield a fair price. "Part Two: Eyes on the Prize," examines how family disputes and insufficient attention to advanced planning functions can limit after-tax profits resulting from the sale.

"The Rothstein Kass Commercial Services Group acts as trusted advisors to public and private businesses of all sizes and across all industry spectrums. The entrepreneurial spirit of our firm is a quality we share with the family businesses we serve. Our reputation for superior service and our extensive understanding of M&A practices facilitates our work with private equity firms and their portfolio companies. This affords our professionals with a unique perspective on the outlook for family-owned enterprises as they ponder sale of the business in the current capital market environment," said Tom Angell, Principal-in-Charge of the Commercial Services Group and Private Equity practice at Rothstein Kass.

"Our latest research suggests that for almost all companies pursuing a sale within the next two years, monetizing the value of the business is a vital motivation, with nearly 97 percent of survey respondents reporting that liquidity concerns factor into their decision to sell. At the same time, nearly 95 percent of business owners reported that getting the best price remains a central concern. Outdated or inaccurate valuations make it more difficult to determine the optimal sale price in a proposed transaction. With that in mind, it was somewhat shocking to discover that over a third of firms considering sale of a majority stake have never had a formal business valuation performed."

Research for "Heading for the Exits" was conducted by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on the behaviors and finances of wealthy individuals. Companies included in the survey reported majority ownership by family members, first-generation control with a family member holding the senior-most position, and that immediate or extended family members were employed by the family business. Approximately 44 percent indicated that they planned to sell a majority stake within the next 24 months, with the balance of respondents indicated that they had a timeframe for sale of two years or more. Insight into the findings was provided by the principals and professionals of the Rothstein Kass Commercial Services and Family Office Groups.

"As first-generation family business owners initiate the sale process, there are many compelling reasons to consider sale to outside interests. However, factors from market conditions to family concerns will ultimately convince some owners to pursue intra-family transactions. For example, in a low interest rate environment, the tax advantages of transferring assets to family members can be magnified. In many cases, transferring effective control can help to establish a family legacy while creating a stable stream of income for the retiring owner," said Rick Flynn, a Principal in the Family Office Group at Rothstein Kass. "Our research suggests a generational disconnect regarding the preparedness of family members to assume control. Over 92 percent of family business owners pursuing a sale reported that no family member is able to take over. However, 61 percent of family members that oppose a sale to outside interests believe that a family member should be given the opportunity to run the business. The lack of agreement on this issue suggests a need for enhanced communication and active mentorship of the succeeding generation to bridge the divide."

"Heading for the Exits" is available online at the recently enhanced Rothstein Kass website (www.rkco.com). Among other notable findings of "Best Laid Plans":

Nearly 97 percent of survey respondents report that liquidity concerns factor into the decision to sell the family business
95 percent of participants reported that getting best price remains central concern
Almost 92 percent of family business owners are concerned about the financial performance of the business enterprise
65 percent of survey respondents report that limiting stress and disputes within the family are important concerns
Nearly 45 percent expressed concern about the availability of credit, with 69 percent of those pursuing a short term sale in agreement.
Nearly 30 percent of companies considering sale within the next two years have not had a formal business valuation in the last three years
More than 70 percent of businesses with a longer timeframe for sale have not had a formal business valuation in the last three years

Significant findings from "Eye on the Prize:"

Fewer than 27 percent of respondents have taken steps to mitigate the tax consequences of the sale of a majority interest of the family business
The most commonly reported reason for not pursuing advanced planning -- at roughly 47 percent -- is because other family members will need to get involved
Almost 70 percent of family members would oppose the sale of the business to outside interests
Over 87 percent of family members opposing sale to outside interests are concerned that they won't get a fair price
61 percent of family members opposed to a sale to outside interests believe that other family members should have an opportunity to run the company
More than 66 percent of business owners planning a sale within two years and nearly 50 percent of all respondents have already transferred shares in the company to family members

About Rothstein Kass:

Rothstein Kass is a premier public accounting and advisory services firm that has served privately held and publicly traded companies, individuals, and families for more than 50 years. Rothstein Kass has offices in California, Colorado, New Jersey, New York, Texas and the Cayman Islands, each of which has received recognition as a "Best Place to Work."

The Rothstein Kass Commercial Services Group provides essential and complementary professional services to public and privately-held businesses, private equity and venture capital funds and their portfolio companies, broker-dealers and registered investment advisors, as well as to high-net-worth individuals and families.

The Rothstein Kass Family Office Group offers a wide range of financial, wealth planning and lifestyle management services to family offices and high-net-worth individuals. Composed of seasoned financial professionals and certified public accountants, the Family Office Group applies proven expertise with the utmost discretion and attention. Clients include business owners and members of the financial services, entertainment and sports communities.

About the Authors:

Russ Alan Prince is the world's leading authority on private wealth, the author of 40 books on the topic, and a highly-sought counselor to families with significant global resources, and their advisors. He is co-author of Fortune's Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals.

www.RussAlanPrince.com

Hannah Shaw Grove is a widely recognized author, columnist, speaker and an expert on the mindset, behaviors, concerns, preferences and finances of high-net-worth individuals. She is co-author of Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy.

www.HSGrove.com

SOURCE Rothstein Kass