The Catalan family business seeks (the best) succession

BarcelonaThe food company Pastas Gallo, founded in Rubí in 1946, is a paradigmatic example of a complicated family succession. With a widely recognized brand, innovation as its hallmark, and consolidated results, the disagreements among the five children of the founder, José Espona, led the heirs to divest their majority stake in 2019 and sell it to the Madrid-based venture capital fund Proa Capital. While three of the five brothers later returned to the group – albeit with a lower participation than initially – the company lost part of its essence. Two years after the operation, Pastas Gallo moved the production of dry pasta from Granollers to Cordoba, and during the last two available financial years – with the asterisk of having faced investments of over 50 million euros – it has registered losses exceeding six million euros.

The Gallo case highlights one of the major challenges facing Catalan family businesses. With a generation of entrepreneurs born in the era of baby boom who are approaching retirement, generational handover occupies and also concerns. "Handover is one of the riskiest moments for a family business. [...] If a family business works well and the handover is done poorly, the house collapses," points out the professor at Pompeu Fabra University (UPF) Oriol Amat, one of the academics who has studied the dimension of family businesses in Catalonia the most. And although the transfer of all the wealth generated by entrepreneurs boomers is a global phenomenon, in the Principality it takes on special importance.

The generational transfer of wealth that is already underway – and that according to experts will experience a wave lasting approximately ten years – is immense. According to a study published this past June by the Catalan Association of Family Business (ASCEF), family businesses represent 92.3% of the total companies in the country, generate 76.9% of private employment, and contribute 70.3% of the gross value added (GVA, a macroeconomic measure to calculate the real wealth generated by an economic activity).

Despite the relevance of this type of company, much remains to be done regarding succession, especially considering the degree of inexperience in this field. The ASCEF data itself reveals that 55% of people leading a business in Catalonia are over 60 years old. At the same time, the association estimates that six out of ten family businesses have not yet undergone their first succession.

Another study carried out by the UPF Barcelona School of Management, titled "The professionalization of family businesses", provides more data. After surveying around 130 companies, most of them based in Catalonia, the document concludes that there is still work to be done to ensure orderly succession. Although the results show a heterogeneous reality among corporations, the averages are revealing: of the family businesses analyzed, only one-third have implemented the formal practices considered relevant to achieve a high degree of professionalization (and thus facilitate succession). Professionalization, in this sense, is understood not only as the incorporation of external managers or the adoption of advanced management techniques, but also as the implementation of formal governance, planning, and control structures, practices, and mechanisms that allow for the ordering of relations between family, ownership, and business.

According to the study, basic professionalization practices such as having audited accounts or establishing remuneration for family members according to market criteria are completed in a large majority of cases (62% and 84%, respectively). On the other hand, other more advanced practices such as the development of a training plan for family owners only exist in 11% of cases. Thus, the document observes that companies with "almost non-existent" professional structures coexist in the country with others "clearly institutionalized," without a dominant model.

Most common mistakes

The employers' association of small and medium-sized enterprises and self-employed workers in Catalonia, Pimec, has long advocated for the importance of consolidating good succession plans to ensure optimal business continuity. Despite this, the organization warns that awareness is still lacking. "First-generation entrepreneurs are experts at being entrepreneurs, developing, and managing, but they are not specialists in business transfers. Therefore, we often find that this process is not adequately prepared," acknowledges the director of Pimec's Department of Strategic Consulting and Financing, Pere Cots. The problem is particularly acute in Catalonia, characterized by its business fabric composed mainly of micro-enterprises, a size that, in many cases, makes professionalization even more difficult.

The main errors that the employers' association detects on most occasions are two: on the one hand, acting too late, and on the other, not having the necessary documentation and plans sufficiently organized. "The complexity of businesses today is much higher, and it is necessary to be surrounded by professionals who allow the business to continue moving forward," adds Anna Olsina, managing partner of Diaphanum, a company specialized in wealth management and advisory services with offices in Barcelona.

In fact, Pimec, which has various advisory programs for micro-enterprises and SMEs with annual turnovers exceeding ten million euros, recommends planning generational succession in advance. "It is advisable to do it when the entrepreneur is in full capacity. When it is done well, it is when one has the feeling that it has even been done too soon," states Cots.

Choosing the best succession

Beyond professionalization, family businesses often have to face uncomfortable realities, especially when choosing managerial succession. Owners' preference usually goes for transferring the business from parents to children, people who have been nourished by the company's culture and who, in many cases, have consciously prepared for succession. But this formula is not a guarantee of success.

One of the clearest examples is that of Jonathan Andic in his exclusively business capacity. The son of the founder of Mango studied accounting and finance for executives at IESE Business School and then a master's degree in business administration (MBA) at the same institution. He joined his father's company in 2005 and, for several years, was tasked with managing the men's clothing line to gain experience for future leadership. The big moment came in 2012, when he was appointed executive vice-president and began to exercise an increasingly independent management from his father. In 2014, however, and after two years of millionaire losses, the father and founder Isak Andic took back the reins of the fashion giant to set it back on course.

"Statistically, a son being the most suitable person [to run a business] may not be the best option," indicates the director of Creand Asset Management in Catalonia, Xavier Moreno, an entity specialized in private banking and wealth management with offices in the Catalan capital, La Seu d'Urgell, and other points in Spain. In this regard, he observes that the "boomer" generation is "more willing to listen" and be advised on the best management options, sometimes based on separating ownership from senior management.

Values of the family business

The various studies carried out by academics highlight the positive impact of family businesses on a country's economy. In terms of performance, this type of company is generally smaller and less capital-intensive than non-family ones, but shows often higher profitability levels. They also stand out for a lower dependence on debt as they mature and for a greater female presence in management positions. "They are companies more sensitive to the consumer: on issues related to language, culture, customer service," observes Professor Oriol Amat.

Preserving family businesses seems like a good option, although sometimes situations arise where, due to different circumstances, the business has to be transferred, either due to lack of a successor or because they are companies in sectors that need scale to grow and require large investments that they can no longer afford without external support. Faced with these scenarios, making decisions that may seem painful at first glance – especially in the sentimental context – is often advisable. "Selling is not a failure: it is another option when done decisively and the family legacy is transformed," argues Anna Olsina, from Diaphanum.

In this context, the debate that has been pursuing Catalan companies for years becomes relevant. Groups that traditionally belonged to families from the territory have, over time become owned by foreign capital. The list is long: Codorníu, Freixenet, Cirsa, Ercros, Pronovias, and Ficosa are just a few examples. In the hands of large funds, priorities are reoriented, and the generation of dividends and value creation become the new main objectives. On this point, experts warn that a poor succession can end up leading to closure or bad sales, with the consequent loss of decision-making centers and the negative effects they entail for the country.