Accessing growth capital:
exploring the best alternatives for family
business entrepreneurs
Guido Corbetta
Chair AIdAF-EY of Strategic Management in Family Business
In memory of Alberto Falck
Helsinki, 19th September 2014
How do family-owned companies
usually fund the growth of the business?
Source: EY, «The Vital Entrepreneur. High impact at its best», 2013
-2-
Long term financial resources for
long term investments
Investments
time horizon
Funding
sources
long term
(innovation, M&A,
internationalization,
diversification)
To be replaced
after 4-6 years
«Internal»
 reinvested earnings
 sell of non core assets
 equity from the owning
family
«External»
 IPO (minority)
 PE (minority)
 Bonds
-3-
Traditional internal long term financial
resources have some limits
• Reinvested
earnings
• Profitability insufficient to selffinance both short term and long
term investments
• Equity from the
family
• Consistency with family’s
committment and decisions of
capital allocation and risk
diversification
• Sell of non core
assets
• Lack or insufficient value of non
core assets
-4-
If family businesses want to collect
external long term resources they need
….
 Ambitious and sustainable strategic plan
 Effective corporate governance
 Reliable and motivated management team
(track record)
 Transparency and communication
 Professional financial planning
-5-
Why family businesses are reluctant to
IPO or PE? (1/4)
Economic
Asset:
Financial
Return
Share Value
Share Holder Value
Share Holders’
ValueS
Source: Lansberg-Gersick
Emotional Asset:
Psychological Return
-6-
Why family businesses are reluctant to
IPO or PE? (2/4)
«If you talk to PE or people in listed
companies, it’s about return on equity, top
line growth and key ratios. And the easiest
way to achieve those things is to load up with
debt and make acquisitions. A long-termist
family business don’t do that. I think there’s
really a fundamental watershed between
the philosophies»
(Philip Aminoff, President Emeritus of European Family Business Group and
Chairman of Electrosonic Group, a Finnish family business - Source: EY 2013)
-7-
Why family businesses are reluctant to
IPO or PE? (3/4)
«We don’t think in quarters, we
think in generations»
(Mario Preve, Chairman of Riso Gallo, an Italian rice producer since 1845 - Source:
EY 2013)
«We look at our investments over
decades rather than in quarters»
(William P. Lauder, Executive Chairman of Estée Lauder Companies Inc. – Source:
Egon Zehnder International, The Focus vol. XV/1, 2011)
-8-
Why family businesses are reluctant to
IPO or PE? (4/4)
«I like the markets and understand that
they play an important role, and a
necessary one, if a company is beyond a
certain size. But they overdo it in one
direction or another and force you into
running a company in a certain way.
Especially in a time like this, it is an
advantage to be a family-owned company»
(Heinrich Spaengler, Chairman of the Supervisory Board, Bankhaus Carl
Spaengler & Co Aktiengesellschaft, a 180-year-old Austrian private bank –
Source: EY 2013)
-9-
The advantages of IPO (1/5)
Growth
Reputation
• Collecting significant financial
resources maintaining D/E
equilibrium
• Increasing company credibility
towards stakeholders (both
industrial and financial)
• Attracting external managers
and renewing the managerial
approach
• Increasing the recognition of
the value of the company
Generational
transition
• Allowing to buy out family
shareholders
Diversification of
family wealth
• Investing resources in other
businesses or activities
- 10 -
The advantages of IPO (2/5)
«We decided to list our shares on the Stock
Exchange market as we understood the
opportunity to use equity as a tool to finance
projects – through mergers, cross stockexchange and any other possibile operation
regarding the share capital – that could
support the growth of our group»
(Pierantonio Nebuloni, former CEO of ERG Spa, an Italian listed Oil company –
Source: Aidaf)
- 11 -
The advantages of IPO (3/5)
PRE
IPO
REVENUES
POST
IPO
IPO
220
200
180
Index:
2007=100
Luxury Market
(Altagamma)
Prada
160
140
Ferragamo
Source: our
elaborations
based on Prada
and Ferragamo
financial
statements
120
100
80
# STORES
PRADA & MIU MIU
2007
2008
2009
2010
2011
2012
2013
181
202
228
278
339
409
480
+21
+26
+50
+61
+70
+71
- 12 -
The advantages of IPO (4/5)
EBITDA
Index: 2007=100
PRE
IPO
IPO
2010
2011
POST
IPO
400
350
300
250
200
150
100
50
2007
2008
2009
2012
2013
Source: our elaborations based on Prada and Ferragamo financial statements
- 13 -
The advantages of IPO (5/5)
300
250
Prada
Ferragamo
200
150
100
Source: our
elaborations
on Bloomberg
database
50
giu-11
dic-11
SHARE PRICE
giu-12
dic-12
giu-13
dic-13
giu-14
Share price since Prada and Ferragamo IPO
Index: June2011=100 (Rebased in $ terms)
- 14 -
The advantages of PE (1/2)
Technological
development
Organizational
restructuring
Accelerating
(long term)
growth
Internationalization
If the family
business is
involved in …
M&A
(industry consolidation,
diversification, …)
Ownership
restructuring
Governance
restructuring
Succession
… through PE it can acquire competences, experiences, relations,
besides financial resources
- 15 -
The advantages of PE (2/2)
«I am very pleased to work with
Blackstone and, in particular, with
Stephen Schwarzmann, whom I admire
for his achievements and who shares
the
family’s
vision
for
the
development of Versace»
(Donatella Versace, Creative Director of versace Group – Source:
Versace/Blackstone press release, 2014)
- 16 -
How do PEs position as
active minority investors?
The mission of Fondo Strategico Italiano: «patient, long‐term
investor, with active governance»
Active governance
Goals to achieve through active governance

Board representation


Role in the appointment of
key managers

Support management
«sparring partners»

Veto rights on key topics

Exit protection mechanisms
(right to call IPO or sale
starting from a certain date)
Source: FSI, 2014
as
The objective of FSI in managing its
investment portfolio is to create leading
global businesses in their sectors
 FSI looks at the possibility of its investee
companies to:
 grow both organically and through
acquisitions
 consolidate or improve international
presence
 have a clear path to exit, mostly through
IPO, by building a credible equity story
- 17 -
In conclusion …
• … think to the future of your company (and
your family)
• … IPO and PE may be useful for your
company (and your family)
• … be pragmatic and evaluate advantages
and disadvantages of IPO and PE
• … in any case, create an holding company
and define professional governance and
management systems
- 18 -