If the world of mergers and acquisitions (M&A) with its meshwork of statements, guarantees, representations, indemnifications and indemnities, lapsing of rights, closing dates, conditions precedent and all manner of concepts and terms seems to be complex, the M&A universe is at least double in size in family operations.
Generally, an acquisition of family companies or family businesses (by a larger company or an international company) presents several challenges – more cultural than legal. One of the most common issues is the desire of the younger generations, who are generally in their first steps of family business management, of selling the business if a good opportunity arises. The older generations or the founders of the business almost always oppose the desire of letting the business go. Sometimes, as it is normal, the possibility of a good operation clashes against the nostalgia of giving off a company that most of the times has been built brick over brick. This involves tensions between a transaction written on paper and disposal of a long and patiently built business.
To this factor (the nostalgia of giving off), it is necessary to add a cultural obstacle that perhaps is even more complicated: The fact that it will usually be just one more transaction for the international company that will buy – aided by its team of investment bankers, lawyers, advisers and accountants. International companies are used to negotiate and to close cycles country by country. For the family, on the other hand, a lifetime is being sold and, hence, that is why they emphasize matters that are hardly understood by business people: Relationships with the staff or relationships with traditional advisers used to the policies of family companies.
Then there is a technical aspect: The fact that family companies – generally not used to third parties sticking their noses into their books and their desks – consider due diligence an unnecessary meddling and the fact that the contractual architecture (share purchase agreements), escrow mechanisms (trust instruments), transition and license agreements, franchises, inexistence of golden parachutes, also look like excess legality and excess care. While the buyers wish to tighten every screw and to look under every stone, the selling company will want to receive its price and not to see any lawyers or bankers at least in three further lifetimes.
Because of the foregoing, it is important for an experienced adviser to understand that the ways and the mechanics of international buyers might sometimes clash with family policies and customs, and that transactions that might look automatic on paper, usually require a great deal of tact and strategy.
Warning: This newsletter by Pérez, Bustamante & Ponce is not and cannot be used as legal advice or opinion since it is merely of an informative nature.