Career The factors for successful succession

The levers for successful company succession are initiating steps in good time and obtaining expert assistance.

11 Jun 2019 8 min read

Even the most successful entrepreneur is not immune to unforeseen events such as a serious illness or a bad accident. Such events require swift action. An orderly handover of staff, on the other hand, requires appropriate preparation.

“When we ask whether there is a specific plan in place for succession or transfer, the answer is often no,” explains UBS client advisor Eleonora Del Fante Ferrario. “This often only comes to light when we discuss the new strategy with the CEO or the shareholders,” adds Stéphane Lienhard, who advises corporate clients in French-speaking Switzerland. “In the course of our regular contact with companies, we not only inquire about day-to-day business but also about long-term planning,” reports Catherine Rukavina, Head of the Wealth Planning Team for Eastern Switzerland and Ticino. “In these cases, we usually initiate strategic dialog to work out a long-term view together. This automatically raises key questions about the roles of the owner or the CEO in connection with a transfer or sale of the company.”

When we ask whether there is a specific plan in place for succession or transfer, the answer is often no.
Eleonora Del Fante Ferrario

In the course of this strategic dialog, which does not necessarily have to result in a company transfer, a team of experts from various specialist areas of the bank works together. “Depending on the situation, we call in financing experts, capital market specialists, real estate experts, asset managers or consultants on company sales,” Lienhard continues. “But there is no typical case – every succession is unique, and every case requires a specific, tailor-made solution as well as individual assistance.”

Expert tips

1. Provide for the future

Every entrepreneur should carefully prepare for unexpected events. These often provide the impetus for taking immediate action regarding the future of the company. In this context, we therefore recommend that issues such as inheritance contracts, powers of attorney or a living will be addressed at an early stage.

2. Define a clear owner strategy

Sustainable succession solutions are based on clear ideas about the objectives and future role of the entrepreneur family. Entrepreneurs and their families are well advised to decide carefully which financial and non-material interests should be given priority.

Internal or external transfer?

UBS is well placed to help thanks to its wealth of experience in all aspects of succession. Every entrepreneur follows a unique path through life, and the focus is always on searching for the best future solution. Three options are in the foreground: a transfer of the company within the family, i.e. FBO (family buyout), sale to the existing or new management, i.e. MBO (management buyout), or sale to financial investors or to another company as part of a takeover transaction, i.e. M&A (mergers and acquisitions).

The specific procedure does not always prove to be easy. According to UBS specialists, there are a number of stumbling blocks. Along with the lack of a strategy for the future, another frequently encountered hurdle is a disregard for preparatory work. Other potential obstacles are the owner’s lack of willingness to hand over the company and responsibility at the appropriate time, or inadequate solutions due to a lack of resources or poorly qualified successors.

Entry age of 50

“Ideally, the whole process should begin when the previous owner is around 50 years old,” says client advisor Del Fante Ferrario. “This phase gives the owner exactly the right amount of time to carefully prepare their company for a subsequent handover and to deal with the right succession solution in depth.” The entire process often takes several years. “If legal restructuring is required on top of that, it must be initiated at least five years before the transfer due to legal requirements,” emphasizes Rukavina.

Ideally, the whole process should begin when the previous owner is around 50 years old.
Eleonora Del Fante Ferrario

There are also good practices in the event of the unexpected death or serious illness of the previous owner. It is very important that responsibilities are quickly transferred to another person within the management. “Once they have reached a certain size and legal form, companies have deputizing regulations to ensure that operations can continue,” explains Rukavina. “The owners may be represented by their heirs or executors, whom we also assist with the succession solution.”

An unexpected event often gives an entrepreneur the impetus to start thinking about the future of their company and to prepare accordingly. Subjects such as inheritance contracts or wills can also be brought up during this comprehensive analysis.

Expert tips

3. Plan your succession at an early stage

Responsible entrepreneurs take care to plan and implement succession at an early stage. They are aware that delayed planning can complicate the whole process and increase the risks involved. Questions regarding succession are often ignored or overshadowed. The reasons for this are usually more emotional than factual.

4. Check different strategic options

Alternative succession solutions have both advantages and disadvantages for the company and the entrepreneur family. On the basis of the chosen owner strategy, you should carefully evaluate all the potential options without committing yourself too early or too intensely to a single succession solution.

5. Settle the succession by mutual agreement

A well thought-out succession plan takes into account both the interests of the company and those of the entrepreneur family. Well-balanced solutions emerge when financial and emotional conflicts of interest are discussed objectively and resolved amicably within the family for the benefit of the company.

A welcome change of perspective

In addition to specialist knowledge, this also requires a great deal of sensitivity, for example if the previous owner, who built up the company and successfully managed it for years, feels unable to part with his life’s work. “A change of perspective usually helps, as it creates the necessary distance to everyday business,” summarizes Rukavina. By taking a different view of the private pension needs of the entrepreneur in the course of overall planning, questions often arise about the future income required and about the handling of other assets tied up in the company.

Such clarifications focus on the value of a company. “Depending on the initial situation, the parties involved have very different ideas about the selling price or the value of the business,” says Lienhard. “Emotions play a big part in this.” The bank’s specialists then determine the “fair” value. “It’s important to balance the needs of the previous owner with the interests of the other parties,” Rukavina explains as she describes this procedure.

Depending on the initial situation, the parties involved have very different ideas.
Stéphane Lienhard

In the best-case scenario, the due diligence process goes smoothly and the company passes into new hands. “A joint event is frequently organized with all the key participants to conclude the transfer,” says Del Fante Ferrario. “The sale marks the end of the owner’s previous role. However, this is by no means the end of UBS’s client service, which is now passed on to its private client advisors,” adds Rukavina. “Once the whole process has been completed, we also ask for feedback from those involved,” says Lienhard. “And that’s when it becomes clear that entrepreneurs have everything to gain from dealing with the succession process early on and from working with the right advisors.”

Expert tips

6. Evaluate the value of the company from the point of view of the successor

The value of your company is largely determined by the earnings situation and the free cash flow available in the future. A successor or buyer can only pay a price that can be justified and financed on the basis of their own future expectations.

7. Protect your family assets and ensure pension planning

A long-term view is required when it comes to asset management and retirement planning. You should therefore start investing your private assets in a risk- and return-conscious manner early on, and separate them from your business assets. A well thought-out internal family succession solution should take into account the fact that all heirs must be treated equally and paid out within the legally prescribed framework, for instance.

What belongs to whom?

“Strong teamwork and an analytical approach have proven their worth,” Del Fante Ferrario sums up her wealth of experience. This results in comprehensive assistance, in the course of which important aspects are evaluated by different experts in order to find the best solution. “Clients should also take advantage of the opportunities offered by the separation of corporate and private assets and pension planning,” recommends Rukavina. Many companies have not drawn any clear boundaries here. This makes good pension and asset planning even more challenging.

The separation of business and private assets is one of the most important financial measures in the run-up to succession.
Catherine Rukavina

The experts

Succession within a company raises complex business, legal, financial and tax issues, the interdependencies of which are often difficult to assess. For this reason, at UBS experienced experts always work hand in hand. This holistic approach significantly improves the quality of the advice given.

Photo: Nik Hunger

Catherine Rukavina heads the Wealth Planning team in Eastern Switzerland and Ticino. She advises clients at various stages of their lives and assists them with legal, tax and business matters. The focus of her activities is on finding the optimal solution for all the parties involved.

Photo: Valeriano Di Domenico

Eleonora Del Fante Ferrario manages the private assets of entrepreneurs and their families in Ticino. Thanks to constant exchanges with the respective company client advisors, her clients benefit from a 360-degree consultation. It is essential for them to build up a trusting client relationship.

Photo: Valeriano Di Domenico

Stéphane Lienhard looks after corporate clients in French-speaking Switzerland. He advises clients on strategic issues relating to the financial management of their company. He specializes in the financial strategies of SME founders and the dynamics of the Swiss economy.

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