Could buyouts of publicly-listed family businesses be about to grow? The question arises because of the move by the family who owns Nordstrom, a US fashion retailer, to take the business private through a buyout - and the reasons behind that decision. Here are five reasons why buyouts like Nordstrom is seeking will rise.
Control of the business has got to be up there as a big reason why buyouts will rise in the years ahead. Of course, business control has always been of paramount importance to family owners, but this gets diluted probably more than expected after the listing of their businesses. Once listed, the family might still control the business by being the biggest shareholder, but the various regulatory requirements of a publicly listed company can undermine that control and lead to frustrations. Also, minority shareholders might be a bigger pain than expected, particularly if they pursue an activist agenda, not in alignment with the family’s goals. And activist investors targeting listed businesses are on the rise.
The forces of disruption in the global economy are acute as they ever have been. That’s forcing some legacy businesses, many of them family-owned, to rethink their strategy, move fast into e-commerce, and ditch parts of their old business model. Founded in 1901, Nordstrom is a classic legacy retailer, with many branches - and it’s feeling the pressure of the disruptive forces in global retailing. Family owners like the Nordstroms might feel they are better able to meet disruptive challenges by gaining more control of the business. They might argue the family needs more control to make the tougher decisions in order for their businesses to meet the challenges of the disruptive forces in their sector.
Family owners might be forced into a situation where the only way they can resolve a dispute between family members and shareholders is to initiate a buyout process. The money raised by the buyout could be used to pay off disgruntled family shareholders without diluting the shares of the family members who want to remain committed to the business. As more businesses move from one generation to the next in terms of control such disputes are likely to grow.
Nordstrom hasn’t disclosed anything about their potential investor backers for such a deal - and any buyout is likely to leverage the business up by a few billion dollars. But, despite this, Nordstrom will probably find a backer, because money and investors to back such deals are plentiful. Not only that, family-owned businesses seeking such investment are more likely to have a say in the deal in terms of its longevity, i.e. how long the investor needs to stay around for. And they are more likely to get the investor staying around for longer than the normal five to seven years favoured by most private equity houses. OK, of course, there are caveats to this like the health of the business, but for the most part listed family businesses are more likely to find backing for a buyout easier - and on their terms - than they have for some years.
Although the family owners aren’t likely to be just influenced by money when it comes to orchestrating a buyout - after all most of them are rich anyway - making liquidity available for the family could be a factor in a buyout. That money could be used for a host of reasons from backing a corporate venturing initiative, startup, and/or for personal finance reasons. Even when you’re very rich, having more often drives business decisions.