Quo vadis, family business?
A book (also in ebook) edited by the M&A Commission of AIFI, the Italian Association of Private Equity, Venture Capital and Private Debt, has been available for a few days. The book "M&A for development" (where M&A stands for Merger & Acquisition) collects 14 contributions from professionals who work daily in the field of investment banking and financial and legal consultancy.
It is a real investigation in the field, that is, in the living body of the real economy. The final part of the book hosts, for example, the intervention of 4 Italian entrepreneurs who have promoted the entry of minority shareholders in the capital and in the governance of their companies. They have all been successful operations that can be replicated on a larger scale and constitute a crucial response to the challenges facing Italian entrepreneurship.
As Marco Ferrando writes, in the introduction to the book, when an entrepreneur decides to open up the capital of his company, he increasingly resorts to a fund rather than attempting a listing on the Stock Exchange. If there is a need for capital, as there is, the entrepreneur looks beyond the bank, often towards private equity. Also because an evolution is taking place in the operating philosophy of the latter. In fact, private funds are increasingly willing to evaluate minority stakes in companies and not just control. We are talking about medium-sized enterprises with a turnover of between 100 and 120 million euros, almost always family-owned.
active funds
Active funds are more inclined than passive ones to talk about investments, industrial policies and governance arrangements. In 2018, AIFI recorded operations of this type for a value of 10 billion euros, which is not negligible even if far from the figure for other advanced economies and the European average.
As is known, the family business is the heart of the Italian economy. This type of enterprise, for its own continuity and also for the country system, must seek efficient solutions to three major strategic issues: the generational change, the dimensional leap, the managerialization of the operational aspects, and not only those.
In this regard, we found the contribution by Dario Voltattorni, present in the cited volume, very interesting. With important international experiences in different fields, Voltattorni was called in 2014 to direct the Italian Association of Family Businesses. AIDAF was founded in 1997 by Alberto Falck, a business captain with an eye to the future, together with a group of entrepreneurs with a similar vision. Today AIDAF brings together 165 family businesses, which are worth 15% of the Italian GDP.
We are pleased to offer our readers the contribution of Dario Voltattorni, whom we thank, to the collective volume M&A for development, published by GueriniNext with goWare for the digital version. Enjoy the reading.
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Family businesses in Italy and in the world
Family businesses form the backbone of the Italian economy.
The latest edition of the Aub Observatory, promoted by Aidaf, by UniCredit, by the «Aidaf-Ey Chair of Family Business Strategy» in memory of Alberto Falck of the Bocconi University and by the Chamber of Commerce of Milan, returns the photograph of a he Italian economy in which family businesses with a turnover of more than 20 million euros represent 65% of the total number of Italian companies, consolidating a total turnover of over 730 billion euros and employing around 2,4 million workers. If we broaden the view to companies with a turnover of less than 20 million euros, it is estimated that the percentage increases to around 85%.
At the same time, data from the Aub Observatory confirm that family-owned businesses create employment (+20,1% in the last six years, followed by +14,4% of cooperatives and consortia, +5,7% of branches of foreign companies, +1,4% of coalitions, -8,7% of companies controlled by funds and -12,3% of companies and state bodies), grow more than other types of companies (+47,2 % in the last ten years, against 37,8% of other companies), record higher profitability (Roi in 2016 at 9,1% against 7,9% of other corporate forms) and have a lower debt ratio .
Expanding the analysis to the international context, it emerges that even in the main world economies family businesses represent the fulcrum of economic and social development. In a report by the Economist, published in April 2015 and dedicated entirely to family businesses, it is underlined that family-owned businesses represent more than 90% of all active businesses in the world.
The Global Family Business Index, created by the Center for Family Business at the University of St. Gallen in Switzerland, in cooperation with the EY Global Family Business Center of Excellence, analyzes the top 500 family-owned companies worldwide. The countries most represented are the United States (with 122 companies on the list), Germany (79), France (28), Hong Kong (21), Switzerland (19) and India (17). Italy is in 7th place with 17 family businesses.
The first Italian company is in 4th place and is Exor; to find the second largest Italian company in terms of turnover, it is necessary to go down to 123rd position, where Edizione, the financial holding company of the Benetton family, is located, with a total turnover of just under 2017 billion euros in 12. For the third Italian family business it is necessary to go down further, up to the 156th position, where the Luxottica group is located, a company with a turnover of 9 billion euros, founded in Agordo in 1961, a year before Walmart was created, which sits at the top of this particular ranking.
Italian family businesses are, therefore, well represented but on average much smaller than family businesses in other countries.
From this rapid, and necessarily concise, comparison between Italian family businesses and family businesses from other countries, the urgency emerges that Italian entrepreneurial families face an important and historic transition which, contrary to what is believed, is even more strategic and decisive factor of the better known generational passage: the dimensional passage.
From «generational shift» to «dimensional shift»
The generational transition is undoubtedly one of the main challenges that families face in the course of their entrepreneurial history.
From 2001 to 2014, Italian family businesses with a turnover of more than 1 million euro that completed their generational handover amounted to 2%, equivalent to around 3.600 generational handovers per year. Today there are the skills and experience, at an Italian and international level, to prepare entrepreneurial families, even the most complex ones, to effectively and fluidly manage the passage of control of the company between different generations. There are many consultancies and professionals who support entrepreneurs in this path, which is characterized not only by managerial challenges and technical-juridical aspects, but above all by profound reflections and pondered personal analyzes by the entrepreneur.
However, a successful generational handover is a necessary but not sufficient condition for the company's dimensional growth; in order to be able to compete on international markets, it is urgent that we begin to think of the family business not only as a path that takes it from one generation to the next, but as a mission to lead it from its current dimension to a larger one. In other words, that from small companies to medium-sized companies, from medium-sized companies to large companies, from large companies they can face future challenges with greater confidence and awareness and act as a driving force and inspiration for smaller companies.
There is a need, as JF Kennedy said in an October 1963 speech, for a "rising tide that lifts all the boats", a wave that lifts all the boats, and that makes them rise, makes them jump in the size category superior.
Carrying out the dimensional transition does not only mean increasing the company's turnover, but it means opening up to the international context and competition, being connected to a quality network made up of universities, research and talent centres, start-ups and financial interlocutors, local and global institutions. Likewise, the change in size that Italian family businesses have to face passes through the creation of value for shareholders, for the company itself and for all those who rotate and depend on it.
A prerequisite for the "dimension shift"
An important prerequisite for facing the change in size with courage and discipline is the definition of a system of rules both within the family and within the company; a balanced and harmonious whole of Corporate & Family Governance which, on the one hand, defines the behaviors and responsibilities of each player involved - directly or indirectly - in the management of the company and, on the other hand, establishes an indispensable point of reference for all the external actors who work and deal with the company.
This implies an assumption of responsibility by the actors who can decree the success of the enterprise. For the managing director, whether he is a member of the family or a manager outside the family, it means imagining, designing and preparing the organization to operate on multiple markets, on multiple sectors and on multiple projects at the same time, through a team of talented, with an international vision and experience, cohesive on clear and shared challenges and objectives. For the owner family it means feeling and becoming masters of their own destiny, recognizing each other and uniting on common values and expressing strong entrepreneurial leadership. Finally, for the leader of the family it means combining curiosity with tenacity, salvific and persistent doubt with stubbornness in pursuing a goal, the capacity for involvement and cohesion with the hardness of making choices, not simple ones, of selecting the best people for make a journey for which, day after day, it is necessary to draw the map.
Aidaf, the Aidaf-Ey Chair and the Marchetti Notary Firm have compiled a set of indications and warnings for all those entrepreneurs who, aware of the challenges they will have to face, want to be master of their own destiny.
The primary purpose of this Code is to support companies in defining a governance based on stable, objective and shared criteria, balanced but not rigid and which allows for the growth and development of the company and the owner family in line with a modern concept of healthy and responsible entrepreneurship.
The tools for the development of family businesses
There are three most important pillars for achieving an effective dimensional transition.
The first is the managerialization of the family business. Creating an organizational structure and culture that attracts the best managers and rejects mediocrity; an organization in which meritocracy and competence are more important than membership. If these distinctive elements are not clear even outside the company, it will be difficult to attract those talents that Italy has the great ability to educate and train but limited strength to retain.
The second pillar is internationalisation, understood as the ability to plan and implement an expansion path on world markets which is, on the one hand, rapid in development and, on the other hand, effective in terms of results. The most recognized quality of family businesses is the great flexibility and speed in making decisions, even difficult ones; this quality sometimes seems to fail when facing international markets. The challenges facing companies require a long-term vision and courage in the short term; we believe these are the two primary components of every entrepreneur whose raison d'etre is growth.
The third pillar is represented by the evolution of the capital structure of the family business which will have to prepare to evaluate the various opportunities that the financial markets offer them - from private equity funds, to M&A operations, to stock market listing - with the goal of growing, competing and lasting over time. This third stage of the transition in size is certainly the most complex and debated within family businesses.
In particular, M&A operations represent a fundamental accelerator for the company's growth, with particular attention to international markets.
As highlighted by Stefano Caselli, pro-rector of Bocconi University, in a recent article in the Corriere della Sera, «at a time when the country is blocked and needs to create wealth and
occupation, the opposition must be overcome; the possibility of growth, even with mergers and acquisitions, and internationalization must become characteristic elements of the country, which finds itself competing with economies that make gigantism the basis of competition».
