Acquiring Family Owned Companies: Case Studies and Lessons Learned from an HR and Organisational Perspective

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ACQUIRING FAMILY OWNED COMPANIES
CASE STUDIES AND LESSONS LEARNED FROM AN HR AND
ORGANISATIONAL PERSPECTIVE
4 Regional Integration
Management Forum
Amsterdam, Sheraton Schipol
November 16th, 2012
Francesco Picconi

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Introducing Francesco Picconi
Group Head of HR at Falck, Italy
HR Director, South Europe & Africa, Areva T&D, Italy
HR Director, BU Corus Colors, Corus Group, UK
Group OD Director, Indesit Company, Italy
HR Director BU, Transolver/Fraikin, Fiat Iveco, France
OD Manager, Automotive Lighting, Fiat Magneti Marelli, Germany
HR Manager Global Marketing and Sales, GE Oil&Gas, Italy
BUT MOST IMPORTANTLY……
A Multicultural HR passionate for M&A, JV, Post-Mergers Integration
in International/ Global contexts
it.linkedin.com/in/francescopicconi/
Phone +39 335 53518752

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Multinational companies acquiring family owned companies
Multinational company (MNC): to acquire or not to acquire?
“Over the past 20 years, US takeovers by large firms have led to
losses of more than $ 200 billion for stakeholders. However, this
result is dominated by the big losses experienced by shareholders in
big companies” (NBER Working Paper n. 9523)
Family company owner: family succession or selling?
More than 50% of all owners are 50 years of age or older.
Family succession is risky: 70% of all owners fail to successfully
transition their business to their direct heirs.
(Brownstone Capital Advisors LLC)

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Having successors ready within the family is not sufficient to ensure
long-term sustainability of a family owned company. Trends like:
Market globalization
Business diversification
New technology developments
require capital investments which may be difficult/too expensive to
be obtained by leveraging debt (f.i. credit crunch in Southern
Europe economies)
Therefore, raising equity capital can be the only option to finance
increasingly capital-intensive companies
Conclusion: more and more profitable and promising family owned
companies are for sale
Financing options for family owned companies in crisis times

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Financing options for family owned companies in crisis times
1. The stock exchange option: creating a public company by
floating a minority or a control stake.
But: is it a real choice in today’s depressed stock market?
2. The private equity option: opening up to financial partners.
But: equity investors are increasingly selective in today’s
less liquid market. Unless a control stake is released, such
deals are today less rewarding than few years ago.
3. The industrial partner option: today MNC’s are constantly
considering family owned companies for acquisitions.

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Selling a family owned company to a MNC:
the owner’s perspective
As industrial partners, MNC’s are normally familiar with the
business to be acquired and can better understand its challenges
and opportunities.
The acquired company can be placed within a larger industrial
context, where its unique strengths can be put at service of a
larger Group (f.i. new technology/innovation, distribution networks).
The business/industrial knowledge of MNC’s may result in a
longer perspective and/or a better risk assessment in
comparison to a purely financial partner.
Family company owners usually care for the future of their
“creature” and for their employees. In times of crisis, they may
consider that a MNC may ensure a better future for them.
Of course, there are exceptions…

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Case Histories
OBJECTIVES:
Introducing the case history of a MNC (Areva T&D) acquiring two
family owned companies in Italy (Passoni & Villa and VEI Electronic
Industries)
The reverse perspective: introducing a family owned company
(Indesit Company) acquiring part of a MNC (GE Hotpoint) in the UK
Each case history is presented in terms of:
 case description
 integration approach
 lessons learned

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T&D
VEI Electronic Industries
Areva T&D acquiring Passoni & Villa and
VEI Electronic Industries

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AREVA T&D acquires PASSONI & VILLA and VEI
In 2007 Areva T&D, the Transmission & Distribution business of the
French multinational Areva, acquired Passoni & Villa, a 80 year-old
company based in Milan with 30ml € sales and 130 employees from the
descendants of the founders
Areva T&D rationale for buying: among other products, P&V had a
global leadership in HV and UHV insulators (n.3 worldwide after ABB and
Siemens). Areva T&D wanted to focus exclusively on these
products, creating a global central of excellence for the Group
P&V rationale for selling: P&V had a strong “technological nugget” (HV
and UHV insulators) and an outstanding global market potential (mainly
China, India, the U.S.). However huge capital investments were needed
to develop this technology. Moreover, the owners were in their 70s
CASE DESCRIPTION: THE PASSONI & VILLA ACQUISITION

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In 2008 Areva T&D acquired from the founder VEI Electronic Industries, a 40
year-old Company based in Piacenza, with 46ml € Sales and 360 employees
Areva T&D rationale for buying: VEI had a strong market positioning in
Italy, Spain, Saudi, South East Asia, Russia. Plus, VEI had a technological
leadership in some MV Equipment (Gas and Air insulated switchgears).
Again, Areva T&D wanted to focus exclusively on these products/markets
P&V rationale for selling: the founder was in his late 70’s and no family
members were in condition to take over. Moreover, there was a strong moral
committment to ensure the long-term development of the company and the
well-being of the employees
AREVA T&D acquires PASSONI & VILLA and VEI
CASE DESCRIPTION: THE VEI ACQUISITION

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INTEGRATION APPROACH
 An in-depth “hard” HR due diligence supported by a local consulting
company identified several potential liabilities
(consultants, agencies, social contributions, executive compensation).
 In a “soft” HR due diligence, HR interviewed the Key Managers
identifying potential cultural issues with Areva T&D management style .
 Areva T&D focused intensively on securing and “converting” the two
GM’s, planning the retirement of one of them after one year.
 As the managerial pipeline was dry, in one year both Management Teams
were rebuilt with external or Areva T&D Managers. A “not without you”
approach was chosen, persuading the former Key Managers to stay with
Areva T&D, accepting to report to a new Manager with MNC culture.
AREVA T&D acquires PASSONI & VILLA and VEI

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LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNED
COMPANIES
DUE DILIGENCE PHASE
 Invest time and money in an in-depth “hard” HR due diligence, possibly
with a local consultant: dealing with family owned companies may
highlight potential liabilities which can even become dealbreakers. In any
case their early identification may avoid future issues.
 Invest time in an in-depth “soft” due diligence through structured
interviews with Key Managers: MNC’s often have structured
processes, matrixed organisations, complex decision-making difficult to
be understood and followed by a family owned company culture.
AREVA T&D acquires PASSONI & VILLA and VEI

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LESSONS LEARNED WHEN MNC’s ACQUIRE FAMILY OWNED
COMPANIES
POST-MERGER INTEGRATION PHASE
 If possible, ensure a smooth transition of 1-2 years. It would be ideal to
“convert” the GM (if exists) and let him/her lead the transition phase
 In any case, an external GM must gain his/her credibility: often family owned
companies have rhytes and myths connected with charismatic leaders (the
founder and his/her heirs, their trusted GM).
 Quickly identify potential “ready-now” successors for all key roles, within or
outside the family owned companies: cultural issues are normal and
possible Key Managers resignations in the first year should be anticipated.
 Family owned companies’ organisational model is often “solar”, with the
entrepreneur or his/her trusted GM at the hearth. As a consequence, the
Management Team could often be weaker than expected in terms of
management/commecial/technical relations and skills.
AREVA T&D acquires PASSONI & VILLA and VEI

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INDESIT COMPANY
ACQUIRES GE HOTPOINT

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INDESIT COMPANY ACQUIRES GE HOTPOINT
CASE DESCRIPTION
 In 2002 Indesit Company, a listed company controlled by the Merloni
family and Europe’s n. 2 in the Household Appliances industry, acquired
GE Hotpoint, market leader in the UK and Ireland. GE Hotpoint at the time
had around 1bn € sales, about 6.000 employees and 6 plants in the UK.
 Indesit Company rationale for buying: decision to better penetrate the
UK mature, sophisticated, service-oriented market by acquiring the market
leader. Moreover, some products typical of the UK market (f.i. tumble-
dryers, double oven) could have a larger niche market in Europe.
 GE Appliances rationale for selling: GE was reconsidering its presence
in the European market, a mature, relatively low margin business, with a
medium-level technology. Focus on the top level high margin segment.

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INTEGRATION APPROACH
 Over the years, Indesit Company had become familiar with the UK and
Ireland market by setting up a relatively limited commercial and logistics
organization, with Service largely outsourced. Over the years the local
management was ready to take some key leadership roles in Hotpoint.
 A “breed” of Italian Key Managers moved to the UK from Russia, where
Indesit had just finished to integrate Stinol, its last large acquisition. The
Stinol CEO, trusted by Merloni family, became CEO at the Hotpoint and
was later nominated Group CEO.
INDESIT COMPANY ACQUIRES GE HOTPOINT

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INTEGRATION APPROACH
 In the first phase, few new processes were introduced in Hotpoint, largely
tied to Finance, Administration and Control. GE Manufacturing, Product
Development, Sales and Service processes were basically kept in
place, while other processes (f.i. Six Sigma) were simply dismissed.
 After 3 years of market experience, Indesit Company restructured
Hotpoint, reorganizing its businesses along the Group’s global business
lines (Washing, Dishwashing, Cooking, Cooling, Service), closing down 2
plants and streamlining all the administrative/ transactional functions.
 The Company focused on Manufacturing efficiency, the Sales, Service
and Distribution network, in an effort to get “back to basics”.
INDESIT COMPANY ACQUIRES GE HOTPOINT

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LESSONS LEARNED WHEN A FAMILY OWNED BUSINESS
ACQUIRES A MNC
 Family owned companies tend to have a less structured Due Diligence
process, where HR rarely plays a key role. They tend to spend less money
in local consultants for DD purpose. However MNC’s tend to follow rigorous
policies and guidelines, and therefore potential liabilities are normally low.
 In the integration process, family owned companies tend to rely more on
trust than on processes: Key Managers are trusted because of their long-
term service and their previous successes in acquisitions integration. The
process tends to be less formalized and more flexible/adaptable.
 Family-owned companies tend to refocus the acquired MNC businesses
“back to basics”. Transactional processes are simplified, top-down HQ-
driven initiatives are dismissed.
 Not all Key Managers from MNC being acquired by family-owned
companies will withstand the “cultural shock”. Careful succession planning
should be implemented as soon as possible.
INDESIT COMPANY ACQUIRES GE HOTPOINT

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Thank you !