21965218 BANCO DE DESARROLLO RURAL, SOCIEDAD ANONIMA

I provided a general overview about the M/A process in section 2.1.2. This next section talks about what makes M/A activities in family firms special cases of merger processes (Gómez-Mejía et al., 2007), and why family firm to family firm M/As significantly increase the transaction success. As family firms are known as high trust environments

26

that do not like change (Kets de Vries et al., 2007), and sustaining the family dynasty is central and crucial to family firms (Ward, 1988), mergers and acquisitions as growth scenarios are extremely rare. As already stated in the section about characteristics of family firms, the non-financial aspects of the firm that meet the family’s affective needs are often more important than purely financial aspects in family firms (Gómez-Mejía et al., 2007). Thomas (2002) reports cases where the family may judge market-based financial offers as inadequate and reject the sale offer when factors such as the offering party’s values do not fit those of the family firm.

As research from Anderson and Reeb (2003) showed, founding families view their firms as an asset to pass on to their descendants rather than wealth to consume during their lifetimes. Therefore, selling the business is a very hard decision for family businesses (Carlock & Ward, 2010). Zellweger, Nason, and Nordqvist (2012) state that “Business exit is always seen as a failure for a family firm” rather than an as intentional strategy to create fresh opportunities, such as a market for new firms, new industries, or new ways of doing business (Sharma & Manikutty, 2005). According to Rau (2013), family firms only sell their business when they really need to, but more and more German family firms are having difficulties finding a proper successor within the family (e.g. because of demographic problems), and are therefore considering selling. Other mentioned family related reasons to sell could be relationship conflicts within the family (Kellermanns & Eddleston, 2004).

So in the recent years, Family Firm M/A (FF M/A) has started to play a more crucial role (Kachaner et al., 2012). Family firms now tend to carry out acquisitions among each other (Ahlers, 2017), so called family firm to family firm M/As (FF to FF M/As). So, when owners have to sell their company (usually because they do not have a proper successor), a stewardship-based exit strategy of family succession is the most likely option (Chrisman et al., 2005), because owners that feel responsible for their firm usually choose a stewardship-based exit strategy (DeTienne & Chirico, 2013).

A stewardship-based exit strategy (Hernandez, 2012) refers to a strategy developed out of an “ongoing sense of obligation or duty to others” (p. 174), and generally provides for business continuity and care of the firm, and the employees (DeTienne & Chirico, 2013). Those pursuing a stewardship-based exit strategy are willing to sacrifice personal financial gains in order to further the long-term vision of the family and to protect the long-term welfare of other stakeholders (Miller, Breton‐Miller, & Scholnick, 2008). This means that an owner preferably chooses to sell the firm to somebody with the least

27

likelihood of intervention in the corporate processes and culture (Gómez-Mejía et al., 2007). This is usually the case when they sell to another family firm (Sachs, 2007), meaning a family firm to family firm M/A (FF/ FF M/A). So, the acquiring family firm enjoys a “leap of faith” in comparison to strategic investors or corporations (e.g. Ostertag, 2013; Ahlers et al., 2017; Kachaner, 2012) and is therefore the transaction form of choice. If an FF M/A is not possible the family firm may prefer a specific type of buyer, e.g. a strategic buyer, whose intended goals and strategies are generally known in advance (Robb, 2002) and more in line with the owners’ aims. Strategic buyers usually have a long-term relationship with the firm and a strategic vision for their investment (Lipman, 2001).

Because of their sensitivity to non-financial factors, this means that in the pre-merger phase the acquiring, as well as the acquired, family firms choose their target very carefully before they make a decision. In cases where family businesses do undertake M/A, they acquire fewer (and smaller) companies (Kachaner et al., 2012). They favour smaller acquisitions close to the core of their existing business or deals that involve simple geographic expansion (Mahmoud-Jouini, Bloch, & Mignon, 2010). Since family firms are often more risk averse than other companies (Hiebl, 2013), it applies even more to them that acquisitions should by no means represent a kind of "entrepreneurial adventure" (Jöns, 2008). Hence an in-depth investigation of the target organisation beforehand is usually conducted much more rigorously in family firms than in others. Due to their inherent risk (for example maintaining their independence) family firms only undertake acquisitions when they are strategically necessary (Ahlers et al., 2017; Rau, 2013). But when the family is convinced that its traditional sector faces structural change or disruption or when managers feel that not participating in industry consolidation might endanger the firm’s long-term survival (Kachaner et al., 2012), then they think about an acquisition in order to protect their company with its socioemotional wealth (Gomez- Meija et al., 2007).

In the merger phase, the following criteria can have an influence on the organisational trust in FF M/A. The friendlier and more balanced a merger is, the greater the mutual trust. When employees do not feel “swallowed” by the merger partner, it has a positive impact on the trust in the new organisation. The more hostile a merger is, the greater the loss of trust on the part of the affected employees (Stahl & Chua, 2002). Additionally, the shared past and history of interaction can have an impact on the reliability of the new organisation. In cases where the merger partner is a direct competitor, it is more difficult

28

to establish reciprocal trust with employees (Stahl & Chua, 2002). This indicates that it depends on the merger form how much organisational trust will be indicated.

Despite the mentioned rising importance of family firm to family firm M/A from some authors like Kachaner et al. (2012) and Ahlers (2017) there has not been any empirical research on this topic. There has been more research in sales of family firms to venture capitalists and private equity houses (Chrisman, Chua, Steier, Wright, & D’Lisa, 2012; Dawson, 2011). These authors all emphasised the importance of non-financial factors, especially trust, in their study but did not really analyse it in depth. Also, authors have rarely examined this topic under the lens of organisational trust, and especially not in M/As of family firms. Therefore, the next subsection looks at mergers and acquisitions in family firms in this context.

As a conclusion of this section, one can say that in cases where family firms need to sell their business, previous research would suggest that family to family M/As should be the method of choice.