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‘The idea that family businesses are completely risk-averse is wrong’
F
amily businesses have suffered 1986 to 2008. CEO Andrew Loftus is the up in a no-man’s land. If they remain a
from a stereotype of crusty son of the original founder and owns the regional player and don’t go for growth, the
conservatism, where the benefit company with his two brothers. He says that prospect is that they will be consolidated.
of strong traditional values is seen as being the family’s determination that Accurist Then the goal becomes making the business
outweighed by an unwillingness to take risks should fund its own expansion, without attractive to an acquirer, which goes against
or change until it is too late. recourse to external investment, has enabled the grain for any family business.’
That view is being strongly challenged by strategy to be determined ‘through choice
family businesses themselves and their rather than necessity’. BRINGING IN OUTSIDERS
representative body, the Institute for Family ‘This year, for example, we are significantly One possible solution is to accept external
Business (IFB). An IFB report last year found ramping up our marketing budget,’ adds investment, which can allow family members
that family-owned enterprises account for two- Loftus. ‘We are spending £1.1 million in the who prefer not to be part of an aggressive
thirds of all businesses and 31 per cent of UK three weeks before Christmas on a television growth drive to exit gracefully while the
GDP. That makes these businesses ‘twice as campaign, compared with about £300,000 others power on. Danny and Mark Schweiger
important’ for the economy as private equity- over the same period last year. Now is a good are the directors of Character World, a
backed companies, said the report. opportunity to purchase advertising space at children’s bedding specialist and former
Kate Murphy runs a medical diagnostics extremely favourable rates.’ Business XL Rising Star which has grown sales
venture with her brother, and is also UK from £7.2 million in 2006 to £20.7 million
head of family business at J.P. Morgan’s FAMILY TENSIONS last year through licensing deals involving
Private Bank. Her view is clear: ‘There’s this Where things can really go wrong is when popular brands such as Spider-Man. The
idea that family businesses are completely family members don’t see eye-to-eye on brothers’ ambitions for the company led
risk-averse. That is wrong because there’s a risk. Richard Farnsworth, tax partner at them to sell a 52.75 per cent stake to private
massive risk in the first place when you are PricewaterhouseCoopers, explains that as equity firm RJD Partners in April 2008 as
setting the business up. In many cases, the businesses are passed down the generations, their father exited the business.
family is banking on the business.’ there are often tensions between those who ‘It was really all about dad coming to the
Because families make such an enormous see the company as a cash cow and those end of his career,’ says Danny Schweiger.
bet in the first place, Murphy argues, they who want to reinvest in growth. ‘We lost a 70-year-old shareholder and
quite reasonably want to limit further risk. ‘You can quickly get into a conflict where gained a professional shareholder with the
That attitude leads to low leverage, or indeed the people running the business need cash to same ambitions as us. And dad could go off
keeping cash in the bank: an approach which make acquisitions or grow the business and enjoy life.’
has served them well over the past couple of overseas, but there is pressure from non- Taking external investment does not have
years as they have taken the opportunity to working family members to keep paying out to mean being acquired outright. Whileman
invest in advertising, recruit high-calibre staff the dividends,’ says Farnsworth. says 3i’s growth capital division takes only
and even make acquisitions. The threat is of an unsatisfying stalemate minority stakes in companies, typically of
where both business prospects and family between 15 and 45 per cent. This allows
RIGHT ON TIME relations sour. David Whileman, head of the families to retain overall control as well
A case in point is watch manufacturer growth capital team at private equity giant 3i, as getting help to internationalise. The
Accurist, perhaps best known for its canny expands on this theme. ‘For many family downside is that you’ll need sales of at least
sponsorship of the Speaking Clock from businesses, there is a danger of them ending £100 million to show up on 3i’s radar. ▼
BUSINESS XL 33
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