Family Business Development

Introduction

A family business is a business that is organized and run by family members in the sense that it is characterized by the idea that the majority of the individuals in such a business who are in top administration positions are people who are related, such as in the case of brothers and sisters or parents and their children. Mergers and Acquisitions refer to a process through which businesses come together and pool their resources into combining as one entity. This creates a more prominent organization that offers more services or similar ones that are more efficient and affordable (King et al., 2022). With such an approach, it becomes possible for the company to enjoy more significant economies of scale which aid the company in its overall income at the end of each financial year.

It is essential to assert that there are different reasons why a company may enter into a merger. These reasons are classified into non-financial and financial reasons, where the latter focuses on the money aspect of things. In contrast, the former focuses on the different aspects that can be reaped from such a venture beyond acquiring more capital (Chirico et al., 2020). It is also ideal to consider that the nature of family businesses, which family members run, makes such businesses somewhat different in the motivating factors that cause them to venture into such businesses. In such a case, this paper looks into the different motivations that cause family-run businesses to enter into a merger and acquisition.

Gaining Professional Help

According to Maran & Parker (2021), family businesses are run by family members who, sometimes, may lack the needed skills required in different departments. In such a case, most businesses under this category compromise and work with what they have, which sometimes does not work. Using such an approach, the business is put at risk of failure since the choices made may, at times, ignore important areas yet remain ununderstood by the individual (family member) making such a decision. An excellent example of such a case is in the idea of decisions being made of whom to give certain positions in the business, in which case the decision made may be the wrong one if the decision makers make considerations that do not include the idea of the education and experience that the persons being vetted for the position has acquired (Maran & Parker, 2021). In such a case, it can be expected that the chosen person may lack the skills needed to raise the business’s competitiveness and likability.

Maran & Parker (2021), therefore, conclude that most family businesses are therefore motivated to move into a merger and acquisition in order to ensure that they can be in a position to create room for improving their administrative ability and that of management through using the expertise in the other business with which they are merging with. This can be noted as one of the most important considerations since the people who run any business often determine whether a business will prosper. In such a case, the effort to gain the needed expertise may be a primary focus, especially when the previous management has realized that many issues hinder the ability of the company to grow.

Brand popularity and awareness

Brand popularity refers to the standards at which the market holds the business, in which case a popular business will generally be one that the public prefers when making purchases. In such a case, these brands will generally have a more significant market share than others in the same market segments. This implies that Brand popularity can be viewed as a means through which a company can ensure that it gains more customers and more revenue at the end of each financial period. According to Meglio & King (2019), family businesses will thus enter into mergers to improve brand popularity, especially when their popularity is slowly losing relevance in the market they intend to serve (Meglio & King, 2019). This is an important aspect given that most family-owned businesses build on their market share by creating a reputation for a particular attribute preferred by the public. In such a case, losing such motivation would devastate the business’s income. Therefore in the hopes of reviving its influence and popularity with the family business in a given market, the business may enter into a merger.

Diversification

Diversification involves venturing into different areas of business where a business may choose to start on the production of a different product line from what it previously worked on and produced. In many cases, such an approach creates a better platform for the business to grow. King et al. (2022) argue that when it comes to family businesses, diversification may be an essential consideration in the sense that it would allow the business to create more significance of its service in any given market (King et al., 2022). This is based on the idea that family businesses tend to be passed from generation to generation. While this may be a safe choice, it at times creates a limitation in the sense that as the business is passed from one person to the next, the same idea or venture may be used, and while such an idea may have worked in the past, it may be outdated with time. In such a situation, diversification would be the next best option to ensure that the business survives the different market changes and changes in consumer wants and needs (King et al., 2022). This situation creates a motivation to merge such a business.

Conclusion

Many factors create an environment that motivates a family business to enter into a merger with another company. Such aspects include the idea that once a company enters into a merger, it would be able to create the needed room to work with better professionals who are in a position to offer more practical help based on experience and education. Another motivating aspect is the desire to improve the company’s brand popularity. The family business can generate more positivity when it is merged with another company affiliated with positivity. Finally, diversity is another motivation for merging since a family business may merge with another business to start working on new product lines to serve a more significant market share.

Reference

Chirico, F., Gómez-Mejia, L. R., Hellerstedt, K., Withers, M., & Nordqvist, M. (2020). To merge, sell, or liquidate? Socioemotional wealth, family control, and the choice of business exit. Journal of Management, 46(8), 1342-1379.

King, D. R., Meglio, O., Gomez‐Mejia, L., Bauer, F., & De Massis, A. (2022). Family business restructuring: A review and research agenda. Journal of Management Studies, 59(1), 197-235.

Maran, L., & Parker, L. (2021). Non-financial motivations in mergers and acquisitions: The Fiat–Ferrari case. Business History, 63(4), 606-667.

Meglio, O., & King, D. R. (2019). Family businesses: Building a merger and acquisition research agenda. Advances in mergers and acquisitions (Vol. 18, pp. 83-98). Emerald Publishing Limited.