The Catalan family business seeks (the best) succession

BarcelonaThe food company Pastas Gallo, born in Rubí in 1946, is the 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 private equity fund Proa Capital. Although three of the five brothers later returned to the group – albeit with 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 Córdoba, and during the last two available financial years – with the asterisk of having faced investments of more than 50 million euros – it has registered losses that have exceeded six million euros.

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

The generational transfer of wealth that is already underway – and which, 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 Businesses (ASCEF), family businesses represent 92.3% of the total companies in the country, generate 76.9% of private employment, and contribute 70.3% of 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, there is still a lot of work to be done regarding succession, especially considering the degree of inexperience in this field. ASCEF's own data reveals that 55% of people leading businesses in Catalonia are over 60 years old. At the same time, the association calculates 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 an 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 for achieving a high degree of professionalization (and thus facilitating 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 relationships 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 successions to ensure optimal business continuity. Despite this, the organization warns that awareness is still lacking. "The first-generation entrepreneur is an expert in being an entrepreneur, developing, and managing, but not a specialist in business transfers. Therefore, we often find that this process is not adequately prepared," acknowledges the director of the Strategic Consulting and Financing department at Pimec, Pere Cots. The problem is particularly acute in Catalonia, characterized by its business fabric consisting mainly of micro-enterprises, a dimension that, in many cases, further hinders professionalization.

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 specializing in wealth management and advice 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 condition. When it is done well, it feels like 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 management succession. Owners' preference usually goes towards passing the business from parents to children, people who have been nourished by the company's culture and who, in many cases, have been consciously preparing 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 of Business Administration (MBA) at the same center. He joined his father's company in 2005 and, for several years, was tasked with directing 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 million-dollar losses, the father and founder Isak Andic took the reins of the fashion giant again for turn its course.

"Statistically, a child being the most suitable person [to lead a business] may not be the best option," indicates the director of Creand Family Office in Catalonia, Xavier Moreno, an entity specializing 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 generation of "boomers is "more willing to listen" and be advised on the best management options, sometimes based on separating ownership from senior management.

Family business values

The different studies carried out by academics highlight the positive impact of family businesses on a country's economy. In terms of performance, these types of companies are generally smaller and less capital-intensive than non-family ones, but they show 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, for different reasons, 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," says 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 of the territory have, over time become owned by foreign capital. The list is long: Codorníu, Freixenet, Cirsa, Ercros, Pronovias, or Ficosa are just a few examples. In the hands of large funds, priorities are reoriented, and obtaining dividends and creating value 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.