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Helping Family Businesses
Prosper Across Generations®

Rueing the Sale

We've seen this story too many times. A new generation takes the helm of a successful third generation family business in a mature, slow-growth industry. A new strategy is developed, moving assets into a more exciting but inadequately understood industry and later, the business is sold often for stock in a larger firm. The family no longer controls its own destiny and watches as its fortune declines. This scenario causes us to counsel clients to move very slowly before exiting slow growth but profitable businesses, to consider carefully the value of accumulated knowledge and experience in a field you know and hesitate before converting the business asset you control into cash or stock, which turns you into a passive investor.

We've seen this scenario affect family businesses small and large, but rarely have we seen it played out as dramatically as the recent experience of the Bronfman family. Edgar Bronfman, Jr. was the third generation to preside over Seagrams, a cash cow that produces not milk but more spirited beverages. The liquor industry isn't growing much, but entertainment is. For that strategic reason, the Bronfman's parlayed their control over Seagrams and ownership of 25% of Dupont first into control of MCA, an entertainment conglomerate, and then into a nine percent share of Vivendi Universal.

Vivendi is in the tank. And while the Bronfmans are still billionaires, their fortune has been dramatically diminished. According to an associate quoted by The New York Times, "they have lost both the status that owning a brand name U.S. company conferred and a good portion of the money associated with their wealth."

Dramatic strategic changes are inherently risky. Family businesses have learned that "slow and steady" incremental changes are most likely to keep cash cows producing.

 

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