Family businesses are essentially private companies and internally focused, with the best passing on the reins of control from one generation to the next. But some (albeit not many) looking for capital and growth have chosen to list on the stock exchange.
As the Walton family (who controls Walmart) would tell you, it could open new growth opportunities and set up more formalised systems for succession planning.
Still, very few Australian businesses have listed. Apart from Westfield, the list is very short. Sue Prestney, a partner in private clients at PricewaterhouseCoopers, says family businesses are less interested in having decisions scrutinised or complying with the rules that listed companies need to go by. Also, there are more alternatives to listing these days to raise capital, such as private equity.
Family businesses have to be a certain size before they list, and most Australian family businesses are too small to do so.
“Research shows that businesses with less than $100 million enterprise value underperform on the ASX,’’ Prestney says.
“Therefore unless a family business has more than $100m enterprise value, they will probably look at alternative exit strategies.”
Still, there are Australian family businesses that have gone down this path and reaped the rewards.
Beacon Lighting: Beacon Lighting (BLX) listed on the stock exchange in April. In its subscription in early March, it raised almost $67m through the allocation of 96.75 million shares. Shares, which began trading at 66 cents, are now worth $1.06, valuing the company at $227.9m. The business was launched in 1967 by John Strahan, who opened a store in Chapel Street. Ian Robinson began there as an employee in 1969. He liked it so much that in 1975, he ended up buying the business. Robinson’s family remains in control of Beacon through its 55 per cent holding. Ian Robinson is currently the executive chairman of Beacon Lighting, while his son Glen Robinson is the chief executive. His daughter Prue is the national marketing manager. Escrow conditions prevent the Robinsons from selling their shares but Robinson maintains the company has long-term growth potential, so the family has no plans to sell out.
Patties Foods: Patties Pies (PFL), trading at around $1.20, started as a cake shop in regional Victoria when Peter and Annie Rijs bought Patties Cake Shop in Lakes Entrance. Their six sons came to work for the business which has brands including Four’N Twenty, Nannas, Herbert Adams, Creative Gourmet, Chefs Pride and, of course, Patties. The pies are still made in Bairnsdale. The company last year reported a net profit after tax of $8.75m on revenues of $126.5m. The family has a presence on the board with Richard Rijs, a son of the founders who has worked in all areas of the business from production and packaging to sales and distribution, and his brother Harry who started there in 1972 as an apprentice patry chef.
ERM Power: Trevor St Baker set up ERM Power (EPW) in 1980 as an energy consultancy and grew from there. It listed in 2010 and shares are now trading at around $1.95. The company sells electricity to small and big business across Australia. It also operates gas-fired generation assets and has gas exploration projects in East and West Australia. It has three business segments: electricity sales, generation and gas. St Baker, ERM’s deputy chairman, handed over the CEO’s role to his son Philip in 2006.
Hansen Technologies: Hansen Technologies (HSN) shares have been trading at $1.31. The company listed in 2000. The business develops, supports and integrates billing systems software for the telecommunications, Pay TV and utilities sectors. It also provides information technology outsourcing services and develops software applications. In 2013, it recorded an after-tax profit of $9.1m on revenues of $63.8m, up 12.7 per cent on the previous year. Hansen was founded by Ken Hansen in 1970. He remained on the board until he passed away in 2012. His son, Andrew Hansen, has been CEO since 2000. Over the last four years, he has sold down his shareholdings in the company from 70 per cent to 30 per cent.
Reece Australia: The Wilson family, which derives its wealth from the plumbing and bathroom supplies group Reece Australia, made the BRW Rich List when its wealth jumped from $1.44 billion to an estimated $1.83 billion in 2013. Reece Australia shares sell at around $30, giving it a market cap of nearly $3bn. The company listed in 1969. The Wilson family owns 69 per cent of the company and dominate its board. Alan Wilson is executive chairman and his son Peter is CEO. The company reported a $55m net profit for the six months ending December 31, 2012, down 5.1 per cent on the previous corresponding period because of the slowdown in construction activity.
Wilson HTM Investment Group: Wilson HTM, which listed on the ASX in June 2007, started out in 1895 when Edward Holmes purchased a seat on what was then the Brisbane Stock Exchange and set up a stockbroking service across Australia. He set up a business with Henry Monteith. Both had sons who were also stockbrokers, James Harvey Holmes and Robert Henry Monteith. When Monteith the younger died in France in 1918, Henry Monteith’s mantle was passed to his son-in-law, Bill Wilson. In 1986, J Harvey Holmes, as Edward Holmes’s firm was known, merged with two other family firms, Tynan & Co and Lynch & McCarthy, forming Holmes Tynan McCarthy Ltd. Bill Wilson’s business had in turn passed to Bob and John Wilson, creating Wilson & Co. The two firms merged in 1989 to form Wilson HTM Ltd. Wilson HTM shares trade at around 62 cents.
The market has seen few IPOs since 2007, irrespective of whether they are family businesses. Prestney says the market is starting to see more deals activity and it is likely there will be more listings in the near future. Whether that includes family businesses remains to be seen.