PwC releases guide for Middle East family businesses in managing shareholder exits

Professional services leader PwC has collaborated with the Gulf chapter of the Family Business Network to launch a guide for family businesses to better navigate shareholder exits.

Seeking to support the increasing number of family-owned businesses in the GCC which are handing over to the second and even third generations, the regional association of the Family Business Network, the Family Business Council – Gulf (FBCG), has joined with professional services firm PwC to publish a guide for family businesses on effectively and smoothly managing potential share-holder exits.

With many of region’s largest companies being family-owned, and shareholder exits posing a real threat to sustainability, the guide is designed to help such businesses understand the opportunities and challenges of the shareholder exit process, including valuation considerations and legal frameworks, while navigating possible differences among family members’ interests and planning for an outcome that preserves both business continuity and family unity.

“The unique dynamics of family-owned businesses become particularly apparent in the case of a family member deciding to leave the business,” says Amin Nasser, senior advisor to the PwC Middle East Private Business platform, with the unique dynamics of the Middle East in turn – where there’s a tendency for wealthy families to be relatively large, coupled with cultural issues particular to the region – adding additional complications.

“Family members choosing to leave a business can be a sensitive topic for all involved, and many will overlook it until it’s unfortunately too late,” adds FBCG Chairman Omar K. Alghanim. “While in the last two years family businesses have improved their commitment to documenting their policies in writing, only 31 percent of businesses have a robust, documented succession plan in place, and only 33 percent have effective governance policies in place.”

Here, in an effort to avoid any harmful family feuds, PwC points out that the ideal scenario calls for documented protocols which have been agreed and formalised well in advance and describe the exact process to be followed by all involved parties in the event of a desired exit. While business valuations are indispensable, there are many potential exit scenarios and options, depending on factors such as the motivation behind the exit decision.

And each, according to PwC, has its different advantages and disadvantages. By way of example, the most common exit route entails a particular shareholder wishing to leave the business, and here, while a private sale to an existing shareholder may keep the business in the family and avoid disruption, the seller may not get the best return. Alternatively, an IPO may bring external capital for future growth, but the potentially generations-old family business will be likely beholden to short-term profit goals.

PwC partner and private business leader Imad Shahrouri concludes; “We recognise that family businesses have always been an engine for growth and their success translates into prosperity for the Middle East region. Family businesses show higher profitability in the long run and have a more long-term strategic outlook. Our goal is to help family businesses maintain their values and legacy while unlocking their maximum potential to achieve a competitive advantage in times of transformation.”