Hong Kong, 21 May 2024 – UBS Global Research and Evidence Lab today released a new report titled “Succession in Asia: How will US$1tn in family business transfers drive markets?”, which analyses the effect of succession on share prices performance on family businesses in Asia by using its proprietary data.

While family-owned businesses generally see similar revenue and earnings growth as their non-family owned counterparts[1], family businesses have been more profitable and delivered 212bps higher return on invested capital (ROIC) on average over the long run, reflecting their greater focus on long-term value creation. Our data shows that Asian family related share price returns also outperformed non-family-owned counterparts by 96bps on an annual basis over 20 years.

Karen Hizon, APAC Equity Strategist, UBS Investment Bank, said: “We estimate 48% of family businesses in Asia, affecting over US$1 trillion in free float market cap and 18% of the MSCI Asia ex Japan Index, will undergo intergenerational transfers in the next five years. The outstanding performance of family businesses captures investors’ interest but they are also worried that share prices will underperform around succession when leadership changes occur. We aim to help investors understand how stocks perform around succession events through our comprehensive analysis, and capture the attractive investment opportunity brought by this upcoming trend in Asia.”

Profile of the Asian Family 500

India and China are the two markets dominating the family-owned universe, which account for 41% and 19% of the total market cap respectively. They are closely followed by Korea (13%) and Hong Kong (9%). Most companies are between 40 and 50 years since their incorporation date. Korea, India and the Philippines have among the oldest family businesses, while China has the youngest on average.

A generation is typically defined by a span of 20-25 years, implying that family businesses in Asia are generally in the second generation, while China is the only one still in the first or founding generation. 72% of companies within are comprised of businesses in their first two generations, where succession will be one of the most important considerations.

Succession dip occurs in near term but rebound three years after

The report also examined the most prominent and biggest family business groups comprising 170 companies across seven markets in Asia, and identified the periods at which transitions had taken place over the last 20 years to understand the impact, if any, to the company’s performance and profitability. The findings show that family-owned companies typically underperformed in the first two years after succession, but stock prices rebound three years after the transition, where investor fears are alleviated. Buying into this weakness, or ‘succession dip’, could enhance long-term returns for investors.

Between keeping it in the family and increasing reliance on non-family executives, the report identified greater volatility in relative performance when leadership is transitioned among family members. The impact on share prices is less extreme when involving non-family executives.

The report also found that transition from the first generation appears to be the most volatile as the founder may be transitioning out of the company which could pose some concerns. Nonetheless, it is also the period at which the company has stronger growth as it is usually still in the relatively early stages of its life-cycle. The fourth generation and later typically underperform more than the earlier generations and recover much later, as issues related to transition become more prevalent, leading to worries around the future direction of the company.

In terms of profitability, the report findings show that ROICs are relatively intact around succession on average. Even though challenging transitions could result in loss of competitive position and a decline in profitability in some cases, there is no clear link between succession and ROIC trends for family businesses in Asia in general.

About UBS

UBS is a leading and truly global wealth manager and the leading universal bank in Switzerland. It also provides diversified asset management solutions and focused investment banking capabilities. With the acquisition of Credit Suisse, UBS manages 5.5 trillion dollars of invested assets. UBS helps clients achieve their financial goals through personalized advice, solutions and products. Headquartered in Zurich, Switzerland, the firm is operating in more than 50 markets around the globe. UBS Group shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).

Media contacts

Angel Yeung, Tel: +852 2971 6884/ +852 9725 0297; angel.yeung@ubs.com
CF Ng; Tel: +852 2101 6038 / +852 9330 6976; cf.ng@ubs.com