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Context Note:

This is a report written towards family business and private business owners who are
looking to take their business public. The purpose of this report is to inform those potential
business owners of the advantages and disadvantages of going public and give examples of
where family/private owned business went public and almost failed or had major problems that
could have been avoided with more careful planning. In attempts to make family/private
business owners more aware of the possible problems that can be encountered when going
public and how they can be avoided in order to save time and resources.

Whether To Take Your Family/Private Business Public Or Stay Private

Abstract
The purpose of this report is to better prepare family/private business owners when
taking their business public. This report will talk about how the key advantages of going public
are being able to trimming the family ownership, and increased in business performance when
going public. The key disadvantages mentioned are timeliness and expenses when going public
and the marketability of a company. This report will also cover how firms such as IChargeIt,
Cadbury and Hermes decided to go public but encountered problems that were unexpected but
could have been better prepared for before going public. The use of this report is to make sure
that family/private business owners are aware of the key advantages, disadvantages and real
life problems that firms had when taking their business public. Also not only to be aware but to
be better prepared for possible problems that may arise as there is always the chance of the
unexpected.
Introduction
Turning a family owned business or a private business into a public business is not as
straightforward as it seems. Each family/private business is different in their own sense, the
dynamics of the business vary, owners have different mentalities and the goals of the business
differ from each other to name a few. There are many reasons why a family/privately owned
business would want to go public and there are many reasons why some businesses steer
away from going public. This report will examine the advantages of going public that may have a
benefit on your business and also the disadvantage of why some business would stay away
from going public. While also using real life companies as examples and how they could have
been better prepared for an IPO. The purpose of this report is to make family/private business
owners more aware of the advantages and disadvantages of going public and problems that
businesses encountered in the past but in no means a statement on whether going public or
staying private is the best option for your business.
Advantages and Disadvantages
There are various advantages that a privately owned company can obtain when
choosing to go public. This report will cover the following advantages when going public;
trimming family ownership and increased business performance.
An advantage of a family owned business turning public would be trimming the family
ownership and allowing family members to exit the business in a more timely manner. This is an
advantage for the business as it allows for family members who no longer want to be apart of
the business to liquidate their shares in the stock market. By doing this it makes it easier for
those family members to sell their shares and be properly compensated rather than if the
business was still private, selling or giving up their part of the company, they might not be
properly compensated for it causing internal problems. Also with the new influx of capital the
business would receive from doing an IPO, they would be able to buy out some shares of the

family members and simplify the ownership structure. This is an advantage as it would allow the
decision making process to be smoother and more efficient. Doing this has been proved to lead
the business being more successful and healthier in the long run if handled with care and
sensitivity (Tharawat).
Another advantage this report will talk about is how going public can help increase
business performance. There has been a study done in France over the last ten years that
stated publicly listed family businesses demonstrated superior performance than those that
were listed but not family owned every single year over the ten year period (Tharawat). Another
study done in the United Kingdom demonstrated that listed family businesses performed better
than private family businesses (Tharawat). Showing that family businesses that went public has
led to the performance of the business to be better and more prosperous. This increase in
performance is due to a matter of different factors. One factor that could lead to this increase in
performance is that the business by going public will be under public scrutiny. This could lead to
increased performance as the business is being observed by factors outside the business
leading to the business to be more disciplined and setting higher standards for the business to
achieve. Also by the business becoming public it opens the business boards to external wisdom
and allows non family managers to take take higher management positions which can provide
outside views and insight within the business.
With the advantages being discussed earlier in the paper, the disadvantages of going
public are also a very important part to consider when making the decision of a family/private
business going public. In the next section of the report the following disadvantages will be
discussed; timeliness and expenses and marketability.
The first disadvantage is the timeliness and expenses that occur with taking a business
public. Going public is no walk in the park and it takes time and occurs a lot of expenses in
order to get an IPO started. An IPO usually takes around a year or more to set up. A year by any
means is not a short process and takes a lot of time and effort within that year to get everything
organized in order to have a successful IPO. Having to plan the launching of an IPO for year will
be a lengthy process and could take time away from the business. Resulting in planning for an
IPO would not be a favorable course of action depending on the business and the situation it is
in. There is also the risk of the market changing, which can affect the wellbeing of the business.
If the market goes on a downward spiral this could lead to the business doing worse than
expected and an IPO deemed useless at that point in time. The expenses part is also another
crucial part to consider. As setting up an IPO requires a lot of capital which may not be readily
available for some businesses. When IChargeIt. Inc decided to do an IPO it estimated the cost
of everything at $3 to $5 million in underwriting fees (Brenner, V. & Schroff, W., 2011). $3 to $5
million is not a small amount of capital and if an IPO fails, most of that capital will be lost.
Making it an important part to consider for any business when deciding to go public, whether it
has the necessary funds to support going public while at the same time having enough capital to
support the business and keep it running at the current performance while the process of going
public is occurring.

The last disadvantage that will be talked about in the report is the marketability.
Marketability refers to the current potential possessed by the business as seen in through the
perspectives of the investors. It would be hard for a company to go public if they are new in the
market, offering new products or services due to the untested conditions. There is also the case
even if the company is well known company and are able to promote their products to investors
there might be a chance that investors are not willing to invest and buy shares of the company
due to uncertainty. This makes it a disadvantage of doing an IPO since it is not always certain
that an IPO will bring in extra capital for the firm due to the lack of interest shown by potential
and existing investors. With the cost of doing an IPO as mentioned previously, there is an added
cost of making the business more marketable if the business is not in a promising state. Leading
to more capital being needed to improve the companys current performance in order for the
marketability of a business to improve. Making the current market and the marketability of your
business a very important factor to consider when deciding whether or not to go public.
Real Life Problems
Doing an IPO for your family/private business is not as simple as it sounds. There are
many problems and situations that can occur when turning your business public. Hermes the
luxury brand decided to list 30% of their family business to the public. At the same time,
unaware to them the CEO of Louis Vuitton had bought 17% of the shares. Louis Vuitton was
their main competitor which proved to provide problems as their main rival had controlled 17%
of the company. This was able to happen due to the CEO of LV (Louis Vuitton) had contacted
different family member who had shares in Hermes and asked if they were willing to sell the
shares to him.
Hermes had 3 options in order to solve this problem of LV buying their shares. The first
option was to buy all the outstanding shares and delist the company returning it to a private
company. The second option was to offer the CEO of LV a premium price for the shares and buy
those shares off him. The third option was to create a holding company that had first right to buy
the shares from the family members. Hermes chose to do the last option and create a holding
company that had the first option to buy and bought all the shares from the family members who
were willing to sell their stake in Hermes. This problem that Hermes encountered could have
been avoided by them creating a holding company at first before the shares were issued to sell.
Even though Hermes now is a multi-million dollar company, the problem they faced
when taking their family business public in the 1990s could happen to any business. Through
examining the case of Hermes and the problem it encountered when taking their family
business public, there are important conclusion that family/private business owners need to be
understand from it. The first conclusion is that your competitors will also be looking to take the
upper hand away from you and as seen in the case of Hermes, LV tried to buy 17% of shares in
Hermes. The second conclusion is that a business should always be completely prepared for
anything and everything when going public. Everything must be planned out and when things
goes wrong, there needs to be a contingency plan that the business can fall back on too when
planning for an IPO. The third conclusion that can be taken from this example is that when

planning to go public, the whole family should be aware of the goals that the business is trying
to achieve with going public and that everyone is on the same page.
Another example of a million dollar company who went public but encountered problems
when doing so is Cadbury. When Cadbury first decided to go public in the 1960s the majority of
shareholders was the Cadbury family but over the course of 50 years the shares got more and
more diluted. The decision for Cadbury to go public in the beginning was due to non family
investors wanting a share of the company and the pressure for Cadbury to go public increased
causing them to make the decision of going public. Over time more and more investors that
werent apart of the family held shares in the Cadbury business and in 2010 Kraft launched a
successful takeover that ended Cadbury being a family owned business.
What can be taken away from this case with Cadbury for any family/private business
owner is that by going public, there is a risk that you will lose control of the business completely.
Although going public means that some of the business is lost in the sense that the family is not
the only holder of the company anymore. The control of the business is also with the public,
which has to be something that has to be considered and to make sure that the family or private
owners are aware that there is a chance that the family may no longer be the biggest
shareholder anymore. The family/private owners must be aware of this and decide that going
public is worth giving up some control of the company and must have a plan if their goal is to
stay the main shareholder by making sure enough shares of the company are kept between the
family/owners who still want to be apart of the business in order to not experience the same
thing as Cadbury did.
Conclusion
To conclude, there are advantages and disadvantages for a family business or a private
owned business when going public or staying private. All of these advantages and
disadvantages have to be considered before taking your business public. Problems can arise as
in the example of Hermes and businesses must be well prepared to deal with such problems
and have a clear plan on what the company wants to achieve and how they are going to
achieve these goals. Loss of control is also possible like in the case of Cadbury, before taking
any business public, careful planning and consideration has to come into effect. Going public is
not as simple as it seems and family/private business owners should always be considerate of
this before making such decisions. How many shares of the company are going to be sold, who
will get the first option to buy the stocks when it goes public, and is the company in a good
enough position to be able to afford all the cost that come along with going public? Those are
just some key questions that need to be addressed and taken care off along with other various
factors that need to be considered before a family/private business is ready to go public.

Bibliography

Are You Sure You Want to Go Public? (2015, May 8). Retrieved October 23, 2015, from
http://knowledge.insead.edu/blog/insead-blog/are-you-sure-you-want-to-go-public-3996
Brenner, V., & Schroff, W. (2004, May 1). Reverse merger or IPO? Consider the former
when you take your family business public. Retrieved October 16, 2015, from
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Family-Owned Business IPO? | Family Business Resource Center. (2014, April 25).
Retrieved October 23, 2015, from
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Pros and Cons: Going Public - FindLaw. (n.d.). Retrieved October 23, 2015, from
http://smallbusiness.findlaw.com/business-finances/pros-and-cons-going-public.html
The Aftermath of an IPO - What Families in Business Ought to Know Before They Go
Public. (n.d.). Retrieved October 16, 2015, from http://www.tharawatmagazine.com/family-business-articles/1568-the-aftermath-of-an-ipo-what-families-inbusiness-ought-to-know-before-they-go-public.html

Reflective Letter
I would like to thank my 2 peer reviewers and Professor Enos for their helpful
comments and suggestions that helped me complete my Unit 3 project. Peer reviewer #1 gave
the suggestion that I should add more real life problems to my report, which I incorporated with

adding the Cadbury case into my report. Peer reviewer #2 helped me identify some of the
grammatical errors that were present in my paper and that helped out when proof reading my
report. I also would like to thank Professor Enos for her extra help in making my report more in
depth and professional.

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