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Go
public to enhance shareholder value
Why aren't there many family companies in the stockmarket?
Our columnist today discusses the need for more to follow in the
footsteps of the Esufally family-held Hemas group and says why this
is beneficial to both the family and the public.
It
was interesting to listen to Husein Esufally, CEO of Hemas, recently
about how his family company had transformed itself into a public
listed company. We do have many private family companies in Sri
Lanka like Maharajah, MAS, Brandix, Siddhalepa etc. In my article
today I will share some views with my readers as to why they should
think of going public.
The
Walmart Way
Walmart, the largest department store in the world once
commenced its business as a private company headed by Sam Walton.
Over the years it transformed itself into a public company where
still the Walton family holds significant shares. The Walton family
infact has a net worth of $ 90billion from its investments and also
receives a dividend income of approximately $ 850 million per annum
from the company.
Why
should a private company go public?
One would wonder why a family which successfully runs
a family company, should think about going public. I would put forward
the following arguments.
*
To unlock shareholder value
* To provide a viable exit route for any family member
* To guarantee continuity
* To move across markets and to raise many sources of finance
Unlocking
Shareholder value
No matter how successful a private company is, its performance
is never clear and its value is unknown. The shareholders who dedicate
their lives to the company eventually have no clue of their wealth.
Many
family businesses are also managed on a life- style basis rather
than on a value driven basis. Employees serve the interests of family
members rather than being very focussed on the bottom line. Going
public and listing is a form of unlocking the hidden shareholder
value.
A
viable exit route for any family member
An essence in family companies is that all should not
take part in management. Eventually there may be some shareholders
who may pursue interests elsewhere and sell their shareholding.
Going public and listing enables them to do so quite comfortably.
Guaranteeing
continuity
Men may come and go, but a company should last forever.
The ultimate success of a company would be based on its continuity
and survival. Family companies may have problems in this regard
due to lack of correct leadership and vision over a period of time.
By going public it will be possible to attract better calibre employees
in the long run who will be able to provide leadership and direction
there by ensuring that the wealth of the shareholders is further
enhanced. Even though the Walton family owns Walmart, the CEO of
the company is Lee Scott. The Ford Motor Company has been developed
by many CEOs over the years.
Attracting
better capital
A public company can list in a stock exchange whereby
it will be able to issue new shares very easily as it requires.
A successful company can infact issue shares to the public at a
high premium. It is to be noted that Hemas shares trade at an average
of Rs 100 even though the par value is Rs 10.
It
will be very easy for an admirable public company to raise debt
capital in the form of debentures from the public at very low cost.
The path to becoming a listed public company
The path to a public company status can be long and painful to a
company, which is obsessed with confidentiality and ownership.
The following changes may be required.
*
Recruitment of professional staff
*A culture based on performance rather than loyalty
*Appointment of respectable non executive directors and if possible
a chairman
*Performance contracts for family executive directors
*Minimising family interference in the business
* Building trust, awareness and confidence among the public
Message
to Investors
The move taken by Hemas is bold and commendable. I hope
other private Sri Lankan companies which are successful in their
own right will follow this initiative and become public listed.
Such
a move will make the Colombo Stock Exchange a vibrant market where
investors will have ample opportunities to enhance their wealth
in many entrepreneurial flavour-driven family-listed public companies.
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