Family Companies Are Undercapitalized

What a family company needs most of all are not external managers and generational renewal, but additional risk capital. These are the conclusions reached by the symposium recently organized by the AIdAF-Unicredit-Bocconi Observatory in the piazza Sraffa classroom building. Gianni Coriani, CEO of Unicredit Corporate Banking, Dario Prunotto, CEO of Unicredit Private Banking, and AIdAF President Maurizio Sella were among the panelists.
The Observatory found that generational renewal is already occurring in its first analysis of company statements and balance-sheets concerning those firms having a turnover larger than €50 million (equivalent to a total of 2,484 firms, once duplications of ownership stakes are excluded). Also, between 2003 and 2007, at least 20% of family firms appointed a new chief executive.
But running the business in the family works better. In the same period, the family companies with the highest earnings where those where the top managerial decisions remained in the hands of the controlling family. In this economic phase, the real problem for family firms is the dearth of capital. "Since the end of 2007, family companies have increasingly resorted to banking debt," said Guido Corbetta, Alberto Falck Chair of Strategy in Family Firms at Bocconi and co-author of the research study.
The ratio between Net Financial Position (financial debt - cash assets) and EBITDA was higher for family firms than for any other type of firm. In 2008 it grew even more, with 41% of family companies exceeding the critical threshold value of 5. Between 2007 and 2008, the share of family firms reporting negative EBIDTAs and thus having troubles repaying debt grew from 2.5% to 7%.
In times such as these that call for strategic acquisitions and extraordinary operations, family companies risk missing out due to their comparatively weak financial position: at the end of 2007, only 15% of family-owned enterprises had cash assets that were larger than their financial debts, compared to 38% of multinationals' subsidiaries, and 30% of state-owned companies.
"This means that many Italian entrepreneurial families need to strengthen their own capital with family funds or resources coming from other actors," added Alessandro Minichilli, the other author of the study.
The Observatory dispels the myth according to which Italian family firms are comparatively backward. In fact, their average growth rate for the 2003-2007 period was a healthy 50.5%, larger than any other category of firm – public, multinational, co-op – save joint-ventures. Return on investment (9.1%) was higher than for any other type of company and family companies paid 5% higher salaries than elsewhere. Italian Medium-Large Family Companies