After the sale: the first year of a founder's proceeds

A founder sells a business for a headline number and the family reads that number in the press. The composition is what matters. In the four post-sale mandates this division took on during 2023, cash at completion averaged 54 per cent of headline consideration. Deferred consideration payable over two to three years averaged 21 per cent. Rolled equity in the acquiring group averaged 19 per cent, and the balance sat in escrow against warranty claims. The family in each case had one concentrated position before the sale and, on the day after completion, still had one.

The first year is therefore a question of sequencing rather than allocation. A family with 54 per cent of its wealth in cash and 19 per cent in an unlisted stake it cannot sell is not in a position to set a long-term allocation. The deferred consideration and the rolled stake are two fifths of the balance sheet, and neither is under its control. We build the deployment schedule around the deferred payments rather than the other way round, typically across seven quarters, and we hold the liquidity to meet any warranty claim without selling something at the wrong moment.

Currency comes before asset classes and is frequently addressed last. A family whose spending, property and school fees are denominated in one currency and whose proceeds arrive in another has taken a position it did not choose. In two of the four mandates the mismatch exceeded 40 per cent of the liquid balance. The remedy is unexciting: match the currency of near-term liabilities first, hedge the medium term on a schedule, and treat any residual exposure as a deliberate position with a stated size. Families understand this argument immediately when it is put in terms of their own outgoings.

Rolled equity deserves separate treatment because it is not an investment the family chose. It is a condition of the sale and it re-concentrates the family in the sector it has just exited, often with more borrowing in the structure than the original business carried. We value it conservatively, exclude it from the risk budget for the liquid portfolio, and document the realistic exit routes with dates. Where the acquiring group is itself owned by a financial sponsor, the family should understand that its exit is timed by someone else.

Governance is the piece that families defer and later wish they had not. The generation that built the business decides by conversation. The generation that inherits the proceeds decides by process, and the process has to exist before it is needed. In practice this means a written statement of purpose for the capital, decision rights recorded for each pool, an annual meeting with an agenda, and a named person on the family side who receives reporting. Structures and tax residence questions belong with the advisers the family retains in its own jurisdictions, and this firm says so plainly.

The firm closes 2023 with US$468 million of client portfolio under stewardship, 201 people, 24 offices and registration in 19 jurisdictions. Growth of that kind is only useful to a family if it means the institution can hold the mandate across the places their liabilities sit. The four mandates taken this year are booked in three different centres for that reason. Capital should not stay where it was earned, and neither should it sit where it happened to land on completion day.

Published 2023-12-12 by the Private Wealth & UHNW division. Research is prepared for eligible counterparties and does not constitute advice.