Does gifting a family business destroy it?

Does gifting a family business destroy it?
With a large number of family businesses operating in North America, the idea that gifting a business to the next generation is mainstream thinking.
At a debate held by the Family Firm Institute in Toronto, Tom Deans was brave enough to contradict the wisdom of the masses. As the son in a second generation business, Tom went through the experience of joining a family firm and working hard to achieve a dream. Tom details the difficulties of conversations not had and questions not asked by family members destroys the family in the long run. In his best selling book, Every Family’s Business, Tom advices that every business should have a plan to sell.
During the debate, Tom explained that if both generations know there is a sale time and what the economic benefit will be for them, the trust will be high.
Trusted advisors need to understand that families shy away from these difficult conversations but that they could help. Using Tom’s 12 questions listed at the back of his book, every trusted advisor could be helping family businesses create the wealth that both generations deserve.

Can companies pursuing their own purpose achieve more?

During these tough economic times it is too easy to get swept away by the general mood. I spent my Friday evening with people who had faced down cruel adversity and created something extraordinary.
I was at the Liberty Grand (with a thousand other people) as guest speaker. I was to talk about Meaghan’s Walk, which has raised nearly $1 million dollars for brain research at Sick Kids’ Hospital, Toronto, including $50,000 by TD Waterhouse. CTV was there to film the event and I was worried I would be caught on TV, struggling to finish my speech, caught up in the emotion of how the fund raiser began.
Meaghan’s Walk was created by Dennis Bebenek, who lost her five year old daughter to brain cancer but wanted to make this tragedy into something positive, and so she created a walk and fundraiser for Sick Kids' Hospital.
As Dr. Eric Bouffet spoke about how, as he phrased it, seed money from Bebenek’s efforts had been used for research that would not have happened otherwise, it became clear that medicine also needs its private equity, higher risk money. Dr. Bouffet emphasized that the money raised meant ideas that were not as main stream were researched and with good results. Bebenek’s drive to pursue her purpose for her daughter’s memory has achieved far more than government funding alone.

Cash for Happiness

Ari Gold, of HBO's Entourage, once said, "Nobody is happy [...] except for the losers. Look at me, I'm miserable, that's why I'm rich". Though I tend to agree with Ari, a new study by the University of Pennsylvania's Wharton School of Business and published by Economist.com disputes Ari's quip on success.

According to the study, companies that were labelled "Best Company to Work For", by Fortune Magazine, provide better returns than the broader market. Alex Edmans, who conducted the study, says that Fortune's portfolio comprising of its 'best to work for' companies, has generated returns 4.1% higher than the CRSP Index, which includes all shares traded by the NASDAQ, the NYSE, and the AMEX.

In times of turmoil it is impossible to suggest that layoffs can be avoided. However, layoffs may be the catalyst to better things. An engineering friend with 12 years of experience at the same firm was let go recently, and he had some interesting insight into his predicament. He said, "I almost expected it, I don't really fit the culture anymore." Though competent and in demand (he would pick up a new job in less than a week), a new ownership team had come in last year that created friction with some employees. A wave of young, flexible, and eager graduates had been hired and slowly the 'old guard' was being removed. The young graduates were cheaper, more willing to take on new responsibilities, and more likely to act without much 'push-back'.  The new ownership was essentially reinventing the identity of the company from the ground up, and for those who proved obstacles to the makeover, they were being removed. 

Though it seems unfair, being laid off was the best thing that happened to my friend, "I noticed that I was getting lazy and bored,' he said '...complacent really" He was forced to leave a situation that made him frustrated for a new and challenging one that, more significantly, made him more productive.

Though qualitative and intangible, according to this study by Mr. Edmund there is a return on happiness. It may simply be the result of a proactive and energetic team, rather than a complacent and demoralized group, but a company that attracts and cultivates a happy group may be proving Ari wrong.

Private investment in Sports continues to thrive

Although Mr. Petty, CEO of Toronto's Maple Leaf Sports & Entertainment private company, did not know how the Fall 2009 ticket sales would go, seems as if sports is one place that still has profits.

Spanish soccer fans are spending their pocket money on uplifting events. You can see Real Madrid and FC Barcelona came in 1st and 3rd place in terms of revenues.

As an aside, George Bush invested $850,000 into a baseball team and reaped $15M from the investment when he exited. Now if only he had done that sort of turnaround private equity investing magic for the USA.

Does privacy pay off for private equity?

One of the criticisms of private equity is its secrecy or as the fund managers may prefer to say, "Their below the radar approach." Privacy is why some owners choose to raise capital from private investors rather than expose themselves to the scrutiny and criticism of the public market. This approach certainly works for Maple Leaf Sports & Entertainment Ltd. (MLSE).

Maple Leaf Sports (MLSE) is the owner and operator of the Toronto Maple Leafs National Hockey League team, Toronto Raptors National Basketball Association team, Toronto FC Major League Soccer team, and Toronto Marlies American Hockey League team—all based in Toronto, Ontario, Canada. In addition to owning these franchises as well as Leafs TV and Raptors NBA TV (the official television stations of the Maple Leafs and Raptors respectively), MLSE is also involved in property management, including ownership of the Air Canada Centre, the home arena of the Maple Leafs and Raptors.

Quite a private company.

The owners are top private equity companies and others:

- 58% – Ontario Teachers' Pension Plan
- 20.5% – Kilmer Sports Inc. owned by Larry Tanenbaum. (Their boardroom boasts the biggest collection of basketball sneakers in the biggest sizes I have ever seen.)

- 14% – TD Bank Financial Group, through TD Capital Group

- 7.5% - CTVglobemedia

As I listened to Richard Peddie, the CEO, speak recently, I admired his pluck at addressing a crowd of Toronto sports fans who wanted to know how MLSE can keep selling seats to losing teams.

Who is buying those seats priced at $200 plus? How much does MLSE make per year, despite losing teams? Could they pay more for players?

Richard Peddie is under no obligation to reveal anything but he did let slip that MLSE is very profitable this year. Private equity gives the business financial support but keeps the cards close to the chest and by the glowing speech by Mr. Peddie, this secrecy strategy is working very well. The fans keep buying and the money keeps flowing.