Conference on Family Businesses: How to Achieve Acquisitions, Capital, and When to Engage a Consultant

At the 9th Lider Conference on Family Businesses, Darijo Krešić from Grubišić and Partners helped participants answer the question of how to buy another company. Although mergers and acquisitions are very common in the Anglo-Saxon world, this is still slowly coming to Croatia, Krešić explained in his introduction. The fact that 50 to 70 percent of acquisitions are perceived as unsuccessful or disappointing for the buyer within 3 years should not deter people from considering acquisitions, Krešić emphasized. The three basic elements of buying a company are answering the question of why to buy a company at all, how to do it once the decision is made, and how to manage after the acquisition is realized.

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Insufficient reasons for purchase, Krešić explained, include excess liquidity, buying solely for growth, pressure from owners or other stakeholders, and copying competitors, while desirable reasons include acquiring knowledge or products, a clear idea for improving the acquired company, more efficient access to customers, and recognizing the synergistic effects of mergers (enhancing sales, better terms of engagement with suppliers, rationalization, duplication of corporate functions). It is worth noting that overly optimistic assessments of synergistic effects, according to research, are the biggest reason for acquisition failures.

Darijo Krešić

Eight Stages

Regarding the process itself, Krešić outlined eight stages of acquisition starting from the initial analysis, followed by the proposal of basic transaction terms, agreement and signing of basic terms, due diligence, preparation of a binding offer, preparation of transaction documentation, signing of the transaction, and closing the transaction. The most common challenges that arise during acquisitions are primarily unrealistic seller expectations regarding price (overvaluation of effort and emotion, overvaluation of real estate and movable property, overvaluation of historical results and brand) and unwillingness to engage in a structured process.

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In the period following the completed acquisition, Krešić concluded, the biggest problems arise from poor initial logic (wrong reasons for entering the transaction), poor execution (mistakes in steps such as poor structure, valuation, or due diligence), and poor implementation (failure to meet the set goals of the acquisition).

The Goal of the Stock Exchange is to be a “Financial Hub”

Morana Plejić, head of the Progress market at the Zagreb Stock Exchange, delivered a lecture on the capital market for small and medium-sized enterprises and how to access capital.

– The goal of the stock exchange is to be a “financial hub” for financing and encouraging companies at all stages of growth, a “meeting place” for companies and investors, and to encourage companies to utilize funds from external investors, Plejić emphasized.

Morana Plejić

The capital market enables assistance in raising new capital, exiting debt financing, attracting new investors, expanding the investor base, and adapting to the demands of external investors, selling only part of the company, retaining the majority of ownership, and providing bonuses to employees in the form of shares in the company.

“Out of the Box” Thinking

In the final lecture, Boris Teški from Instar Business Consulting advised participants on when to engage a consultant, although he immediately noted that he would not provide a clear answer to when this should be done, but that the owners themselves must decide.

According to him, family businesses are successful in managing daily operational problems, but the challenge lies in accepting and making strategic plans that connect the current position of the company with the long-term vision of where it could be. Specific problems that family companies face sooner or later, especially after transitioning to the second generation, include decision-making within the family’s informal hierarchy, influence depending on who is closer to the most influential family member, applying the concept of “I think…” without preparation and arguments, and making decisions in a non-business environment. In this sense, a consultant brings an independent perspective, “out of the box” thinking, independence from family relationships and attitudes, a professional approach, practical experience, and the ability to engage experts for specific problems. There are, of course, downsides. Engaging external experts means additional costs, reliance on a person who does not know the specifics of the family business model and is unknown to family members, granting access to sensitive information to people outside the family circle, as well as issues of trust and uncertainty during selection.

Boris Teški

In Croatia, family businesses expect assistance from consultants in the technical implementation of business transfer (43 percent), company valuation (4 percent), and aligning the interests of the company and family when making decisions about the future of the company. On the other hand, objective reasons for such a move include decisions to separate ownership and management functions of the owners, lack of knowledge for evaluating personnel, the process of strategic thinking, and the need for strategy evaluation as well as management knowledge for the second and third phases of business development.