Watkin Jones, a leading Bangor-based property developer specialising in student accommodation, is said to be considering a stock market listing in London.
Founded in 1791 by carpenter Huw Jones, the company is now led by Mark Watkin Jones, the ninth generation family member to manage the company. With an annual turnover of £250m and some 500 staff, Watkin Jones is proud of its Welsh roots and its status as a “family business”.
So, what is the appeal of becoming publicly traded for a business like this – and what are the particular challenges such businesses are likely to face as they make the transition from private to public?
There are many reasons why family businesses consider the option of floating. Sometimes, a founder may feel like they would like to take some money off the table, having spent many years building up an asset of real value, without necessarily wanting to sell out entirely. Perhaps, a visionary young family member has ambitions for the business that are not easily funded by retained profits.
Other potential motivations include seeking a higher profile, and arguably greater credibility in the eyes of suppliers and potential customers, by virtue of public company status. In some cases, the ability to offer employees options over shares for which there is a genuine market and clear value will be a driving factor.
Whatever the reasons, and there are many good ones, seeking a public listing is a big step for any company. Family-run businesses often have a very distinctive culture and the transition to being held to account by outside shareholders can be difficult. However, this may well be less challenging than coping with the demands of private equity firms who may try to artificially accelerate returns in a way that is not in the long-term best interests of the company.
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The London Stock Exchange requires at least 25 per cent of a listed company to be owned by outside shareholders and the board of a listed company should be even more conscious of the need to act independently and in the interests of all shareholders, not just family members.
Generally speaking, institutional investors who support family companies on IPO are buying into that historic story and will only interfere if the business is perceived to be underperforming. However, family members may be easy targets if the going does get tough and there is no possibility of guaranteeing the family legacy or succession to key roles once control has been ceded.
Loss of privacy can also be difficult to accept. Significant shareholdings and transactions in shares will need to be made public and certain events must be announced to the market without delay. Institutional shareholders will expect a certain amount of dialogue with key members of the management team and this can be a distraction from running the business. Sometimes, family-run businesses have a more relaxed approach to matters such as payment of dividends and loans to directors. Following an IPO, such transactions will be closely scrutinised, if not subject to shareholder approval, and good habits will have to be learned quickly.
Despite these challenges, a public listing can be a great option for a family business. Good communication of the rationale behind the listing will be essential, not least because even quite substantial family businesses may trade off a home-spun image as a differentiator from their competitors. To the extent that this image is something customers and employees have actively bought into, there may be some dismay at a move to public ownership.
In such circumstances, positioning the IPO as a means of securing the company’s long-term future will always be a better idea than suggesting the founder simply wants an exit. At the end of the day, the factors behind the decision as to whether a public listing makes sense will not be so different for a family business compared to other businesses. Any milestone event brings complications and frustrations, but if a family business can hold firm to a “we are all in this together” mentality, it may be surprisingly well placed to make a successful transition to public company status.
Our guide on making an initial public offering is a great introduction to the process for anyone interested.
Melanie Wadsworth is a partner in the corporate finance team in the London office of international law firm Faegre Baker Daniels.