A generational change is a complex process that requires careful evaluation and detailed planning to ensure that the goals of the family and the business are met; planning and using experienced advisors (lawyers, tax advisors, M&A advisors) is crucial to navigating these transitions successfully.
Many entrepreneurs call us to prepare together for the generational change of their business, both assets and industry, a transition that often stirs up strong emotions among family members and employees. Aeffe Capital handles these aspects with care to always maintain an excellent relationship with the client and ensure a smooth transition.
The solutions we propose to clients for the asset side range from taking out a Luxembourg life insurance policy, which can also provide a guarantee of the capital subscribed, to setting up a trust or foundation, or other tailor-made solutions.
The generational transition, especially for family businesses, is a crucial moment that can significantly influence the continuity and success of the company.
Let us look at one of the options that can be considered during this process: the transfer of the business.
This can take place in various ways, with different strategic and operational implications.
A common option is the sale of the company to an external entity, which can be a competitor, a financial investor (such as a private equity fund), or another company interested in expanding its business, in order to be able to make a cash out and then give a return on the cash, investing the liquidity in a discretionary portfolio management or in a life insurance policy. We propose this solution when there are no family members willing or, unfortunately, able to take control, when there is a desire to monetise the investment in the company or the family prefers to diversify its assets.
A different scenario might be when the successors of the family can acquire the shares of the company, usually using internal resources or external financing, thus proceeding to a buyout, i.e. family members purchase the shares of elderly relatives or other shareholders, or a Management Buyout (MBO) when internal management, which may include family members, buys the company.
Another option that could be considered is a merger with another company to bring in fresh resources and additional expertise, facilitate entry into new markets or expand the customer base to improve competitiveness through operational and financial synergies.
Entrepreneurs, faced with the decision to sell, often find it difficult to divest their company. That is why we sometimes propose considering the creation of joint ventures or other forms of strategic partnerships instead of a full divestiture. This makes it possible to maintain a certain degree of family control, benefiting from new resources and skills, and guaranteeing new generations a presence in the company.
If we look at the taxation of the transaction in the context of a generational handover, this may involve complex tax and legal considerations. It is therefore crucial to optimise the structure of the transaction to reduce the taxable portion, consider the implications for employees and existing contracts, and finally make sure that the legal documents are in order and reflect the interests of all parties involved.
