Generational succession has always been a critical process for family businesses. Seventy percent of them do not make it to the second generation, and 90% do not make it to the third. This intrinsic difficulty for this type of company is now compounded by the ageing of the population. The large baby boom generation born between 1946 and 1964 is reaching retirement age, and with it many founders and heirs of family businesses are retiring. Even in the case of successful companies, many are finding it difficult to find someone willing to take over the reins.
It is currently estimated that there are more than 1.1 million small and medium-sized family businesses in Spain with no generational succession. And between now and 2030 we will see many more family businesses failing to find an heir interested in continuing the business tradition. This entails a serious risk of closure, with the consequent loss of wealth and jobs. The Workers’ Statute establishes procedures for the termination of the company due to the retirement of the employer, which could result in collective or individual dismissals.
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Dealing with the lack of generational succession
Faced with the challenge of the lack of generational succession and the strong personalisation of corporate culture, family businesses are opting for a variety of solutions:
- A gradual transition, extending the active retirement of entrepreneurs and allowing them to continue to perform some functions for a more or less long period. According to Social Security data, more than 57,000 self-employed have used this modality to continue running their businesses.
- The hiring of external directors to manage the company, keeping ownership in the hands of the family.
- The sale of the company.
The boom in corporate transactions in family businesses
The enormous weight of family businesses in Spain is similar to that in Japan. And in this country, the lack of generational change has driven M&A operations to double-digit growth in the last 10 years. This is probably the scenario for which we must prepare ourselves in our country.
On the one hand, mergers and acquisitions help to extend the life of companies beyond the involvement of the business family. On the other hand, they help other companies to grow in size and become more resilient.
A paradigm shift in business families
Family businesses are no longer as conservative as they were a few years ago, and have lost their fear of the entry of capital from a financial partner. As for the fear of losing control, this has also been overcome. We are seeing more and more operations in which the founding partner remains a minority shareholder.
There is definitely a change in mentality. Selling the family business is no longer something almost shameful, but a symptom of success. We see this especially in the start-up culture, many of which are sold to a larger company or private equity fund when they reach a critical size.
On the other hand, the economic crises of recent decades have made many family businesses realise that size is key to business survival. And growing exclusively organically is becoming increasingly difficult.
All these circumstances lead us to expect a lot of merger and acquisition activity of family-owned companies in the coming years. We are going to see many companies that are leaders in their market niches come onto the market. At Confianz we are prepared to accompany them in these processes.