Selling a family-owned business can be a difficult process, and it's strikingly similar to selling a large corporation. When many family members are stakeholders in your business, it's unlikely that you'll be able to get all of them to agree to the sale. Unfortunately, family members who believe that you sold the business against their financial best interests can sue if they're unhappy with the deal.
One way that you can protect yourself and ensure you're getting a good deal for your business is to seek an independent fairness opinion from an investment banking firm. Firms who write these opinions determine if the sale of your business is financially fair to all of the stakeholders of the business, typically by comparing the sale price of the business to its assets and the income it generates. Here are three reasons why it's a good idea to seek an independent fairness opinion before you sell your family-owned business.
1. You'll Help Protect Yourself From Potential Lawsuits
Obtaining an independent fairness opinion before you sell your business will aid you in court if you're ever sued. That's why large corporations seek them out before they commit to any mergers or acquisitions.
The majority shareholders that are selling the business have a legal duty to protect the interest of the minority shareholders during the sale. For a family-owned business, this means that the group of family members who have decided to sell need to protect the financial interests of the family members who own a lesser share of the business.
An independent fairness opinion gives you legal protection during potential lawsuits since it proves the fact that you sought the opinion of a neutral third party before the sale. Even if you don't think that you will be sued by any family members over the sale of your business, it's still a good idea to seek out an independent fairness opinion before the sale as it's a very useful statement to have if you're ever brought to court.
2. You'll Receive a Neutral Opinion About the Fairness of the Sale
When selling a business, it's common practice to use the investment banking firm managing the sale to write a fairness opinion. Investment banking firms are required to act in your best financial interest, so the fairness opinion can typically be trusted. However, there's an inescapable conflict of interest that arises when the firm managing the sale is also the firm judging its financial fairness.
If you truly want to know if the terms of the sale are fair, it's best to seek an independent fairness opinion from a third-party investment banking firm. They may use different valuation strategies than the investment banking firm you're currently using, which can give you greater insight into whether or not the sale is financially fair.
3. You'll Have Peace of Mind Knowing Your Family Members Were Treated Fairly
Selling a family-owned business is often a difficult decision, especially if the business has been in the family for a very long period of time. When you seek an independent fairness opinion about the sale, you'll gain peace of mind that all family members who own a stake in the business were treated fairly in the deal from a financial perspective. Validating the fairness of the sale with a third-party firm can also help family members who are reticent about the sale feel like it was a good deal.
Whether you're just thinking about selling the family business or have already found a buyer, it's a good idea to contact an investment banking firm that can offer you an independent fairness opinion about the sale. You'll help protect yourself legally, and you'll also have a better perspective on whether or not the sale is one that's truly financially fair for your family. Contact a company that can provide an independent fairness opinion for more information.