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Selling the family business in S-E Asia – pitfalls and a roadmap

Business families should consider segregating private assets early, think through after-sale scenarios, and how to create a joint platform.

GOOD investment opportunities are extremely sought after and privately-owned businesses make increasingly attractive targets. For family businesses in South-east Asia, the option of “cashing out” or (partially) selling the business has become an intriguing option worthwhile exploring.

The reasons differ from family to family: It may start with the founder’s desire to realise that long-harboured dream; or a realisation that the next generation(s) may have quite a distinct vision on how to spend their lives or they may simply show little inclination to run the business in future. There may be family members with differing opinions on how to run the business, especially in contemplation of a generational transfer or overwhelming competition and a sense of “it’s simply not worth it anymore”. More often than not, it is a combination of the reasons above.

While the reasons for bringing in external investors or selling the family business are manifold, the required steps seem relatively straight forward: agree on a value for the company and then find a suitable buyer. Granted there is more to be said on each, but we would like to focus on the “blind spots” that, if overlooked or not tackled in a timely manner, may result in unsatisfactory experiences when selling the family business.


Take for example John Lee, who grew his manufacturing business in Indonesia from a small production facility to a regional powerhouse with annual revenues of over US$20million. His three kids were educated in the US; two of them returned and one remained overseas. One son joined him in the business, but was lately going on about the true vision for his life, urging his father to invest some of the business profits in sustainable farming. One daughter owned an art gallery, and the overseas daughter was on her third degree, this time in psychology.

After a few heated discussions with his son, John decided to have his business assessed for a sale to an international private equity group. After some initial due diligence, he was informed that the interest in his business was currently limited and that some “cleaning up” may be necessary. He was advised to bring his business to global standards, before matters could progress.

For starters, John, like many first -generation business owners, had co-mingled business with private matters. Both his beautiful house on the outskirts of Jakarta as well as the apartment his son lived in (rent-free) were owned by the business. The business also owned a majority stake in the daughter’s art gallery, a startup, and had granted generous loans to get it “off the ground”.

His longtime right-hand man and confidant, the CFO of the business, also looked after his bankable investments, mainly Asian stocks, held via one of the operating business’ subsidiaries.

The above (fictitious) anecdote is not unusual in the context of family businesses in South-east Asia. The arrangement does not only put the mentioned assets at risk in case of bankruptcy, but makes an arms-length valuation of the business as such difficult, if not impossible.

Both the owner (or owning family) and, certainly, any buyer or investor, will need to separate non-business assets prior to any sale, a process that will require time and effort and will in turn affect the feasibility of the transaction.

In our case, the investor had seen enough to decide that the timing was simply not right yet.


Often, this issue is compounded by the sensitive question of how these “private” assets are allocated and who they are ultimately transferred to within the family. As long as they are part of the business, and only used by family members, this is relatively straightforward, innately accepted or at least not questioned. Trying to gain clarity by defining ownership structures, however, may lead to other family members’ questioning the distribution of those assets; in other words, who gets what and is the distribution fair.

This may prove particularly difficult if assets have developed differently in terms of value over time. These conversations can go deeply into a family’s “fabric” and impact the dynamics between family members. Therefore, they will need time and effort to communicate, think through and implement accordingly. The timing issue should not be underestimated.


Let’s now turn to “the day after” scenarios. More often than not, the transactional nature of the sale is intense and time consuming. Rarely do families consider the post-sale stage. For starters, the core assets (that is, the shares in the family business) have been liquidated; it is now time to consider how to invest these assets in a meaningful way, to transition individually or as a family from an operating business to investment activities.

At this juncture, families have the opportunity to bring both the older and younger generations to the table and develop a joint investment philosophy. The original business may have been driven more or less exclusively by Dad (or Mum), and impending liquidity may provide the catalyst to bring the family together and discuss the road ahead.


Lately, and in part due to a certain frustration with the offerings by traditional wealth managers, a family office is often the vehicle of choice for families going through this transition from a business to a financial family. Run by and staffed with either family members or investment professionals, or a combination of both, the family office looks after the newly created financial wealth.

This may take the shape of a single family office, that is, looking after one family’s wealth exclusively. Increasingly, families decide to eventually open up this activity to third parties, thereby creating a multi-family family office and thus a new family business, with its core activity being investment-orientated.

It is fair to say that most family offices in South-east Asia are still at an early stage of sophistication, characterised by minimal process-driven investment decision-making and low levels of diversification. Expectations though need to be met and, as the CEO and family member of an established single family office points out: “My accountability is vis-a-vis my family, nobody else. We have a certain philosophy of going about matters and our very own risk profile and that’s that. This flexibility is why we opted for a family office in the first place.”

In summary, business families are well advised to consider segregating private assets early, as well as to think through to the after-sale scenarios, and the chances this may create for business families to develop a joint platform, driven by a philosophy shared by multiple generations.

Britta Pfister is managing director, head wealth planning Asia-Pacific at Rothschild Private Wealth and a Distinguished Fellow at INSEAD Global Private Equity Initiative (GPEI).
Claudia Zeisberger is a professor of entrepreneurship and family enterprise and academic director of GPEI at INSEAD.

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