Family Values Vital To Successful Corporate Marriage

Selling the family home is an emotionally charged process at every stage. Besides concerns about the new owners and any changes they might make to the property, family members may disagree on how to handle the many financial aspects of a sale and these disagreements can have a negative financial impact. Research shows that homes sold by estates tend to sell at a discount to comparable homes on the market, largely because the sellers are making decisions with their hearts instead of their heads.

You can easily imagine, then, what happens when the owners of a family business decide to sell. The emotional issues are similar however the stakes are significantly higher, amplifying potential disagreements and financial issues among family members. When buyers are tone-deaf to these issues it can derail a deal .

Both China and Europe have a significant number of family businesses for which M&A is an attractive option right now, due to the current economic environment. Therefore it is important to understand how family dynamics can affect these deals. Many Chinese enterprises are now at the development stage where M&A offers the best option for expansion and globalization, while at the same time the economic downturn in Europe has led many companies there to consider M&A as a solution to market threats. Foreign exchange rates make European companies especially attractive acquisition targets for Chinese.

As increasing numbers of Chinese companies look at merger and acquisition targets abroad, the importance of good governance practices comes increasingly into play as good governance is the rule of the game in the international market. If Chinese companies want to be major players in a foreign market they need to comply with the rules of the game , which means strong corporate governance, respecting all stakeholders including employees, labor unions and the community where the company is located. Acquiring companies also have to respect other countries’ cultures and legal systems.

Chinese entrepreneurs looking for opportunities abroad are also discovering that the M&A game works differently than it does in China. In China, you play by price or by money, but in a well-developed market, money is not the only factor . Yes, money/price is important but it is not the key factor. When targeted firms want to sell their assets or corporations, they tend to want to find another company that shares similar values or philosophies.  This is especially true with a family business. This is because they want the brand or enterprise they built to be there for many years to come, even if they are no longer interested in operating the business themselves. They want to put the assets in the hands of people they can trust, people who share a similar culture or value systems.

This can be an advantage for Chinese family businesses if the enterprise they are looking to make a deal with is also a family business. Evidence suggests that M&A deals where both parties are a family-run enterprise tend to go more smoothly than those where only the target company is still a family-run concern. This is because both have long-term orientation and share similar social emotional wealth.

A good example is the deal between the French small appliance and kitchenware company Groupe SEB, a 150 year-old family enterprise, and the 30 year-old Chinese company Zhejiang Supor Cookware. In 2007, in response to business environment pressures, the founder of Supor, Mr. Su Zeng Fu decided to accept a Euro 327 million investment from SEB in exchange for a 52.74% stake in Zhejiang Supor Cookware. Following the deal Su’s family retained a 36% stake while the remainder was held by public shareholders (Supor had listed in China in 2004). SEB had been looking for a Chinese partner to help it expand into the Asia market and was initially talking to one of Supor’s competitors but could not make a deal. Though at that time his company had the top cookware brand in China and the number four small appliance brand, Mr. Su worried that Supor would be at a disadvantage if one of his competitors made a deal with SEB. He was also concerned about keeping up with rising labor and material costs, and saw a deal as a way to help position Supor for long-term future growth.

Being a family business itself, SEB understood Mr. Su’s unique concerns about dealing with an outside firm. An important issue for many family businesses in such deals is that the family doesn’t want to give up their involvement in the firm. Following the deal with SEB, Mr. Su’s son, Su Xianze, and daughter, Su Yan, have held seats on the board of Zhejiang Supor Cookware. Su Xianze served as Chairman of the Board from 2010 to 2014. In fact the partnership has worked so well that in 2011, SEB acquired an additional 20% of Supor from the Su family. Then in January this year it was announced that SEB would buy an additional 10 million shares of Supor from the Su founding family within the first half of the year. This, SEB said in a press release announcing the deal, reflects its confidence in the continued expansion of Supor in the Chinese market. SEB’s global network has also helped Supor’s products to be distributed and sold in more than 50 countries and regions around the world.
 


Based on empirical analysis, more than 80% of M&As end up destroying value. The failure rate for international M&As is even higher . The major reason for this is the challenges in integration. The return on equity for Supor increased from 10.53% in 2007 to 18.21% in 2014, proof that marriage between two family businesses may be able to overcome these challenges.