What should we do different when we value a privately held Family Business?

Nº 3 / 2014 - julio - septiembre

What should we do different when we value a privately held Family Business?

Francesco Bavagnoli
Universita del Piemonte Orientale
Maurizio Comoli
Universita del Piemonte Orientale
Lorenzo Gelmini
Universita del Piemonte Orientale
Patrizia Riva
Universita del Piemonte Orientale


The academic literature on family business has devoted a lot of attention to define the uniqueness of family firms, in terms of the specific features which differentiate them from other businesses, and to investigate how the presence of the family in the business (family ownership, family involvement in the board or in the management) may have an impact on the performance of the business.
But what are the practical insights that the professional valuer can take away and put in practice when she performs the valuation of a privately held family firm?
Drawing from their academic and professional backgrounds the Authors tentatively try to answer highlighting some specific areas where further research may be needed:
- Family premium or discount? Is it possible to translate into a measure of value the outper-formance / competitive advantages of family
business often emphasized by specialized academic journals?
- Does the strong influence of the family on the business expose the firm to some additional risk and how these risks can be gauged?
- Are there any specific valuation biases in the family business context?
The study suggests that:
- It is not possible to argue in absolute terms that the market should assign a premium or a discount to family firms, despite of what the academic literature tentatively shows about family businesses over-performing their non-family counterparts (but with mixed and inconclusive results especially in the subset of private firms);
- A relevant contribution from the literature, in the professional valuer’s perspective, comes from the identification of the factors that can make the family a benefit or a hazard for the business (the dark side vs the bright side of family business);
- Some quantitative analysis may be useful in order to better understand how the specific characteristics of family firms may influence
their riskiness in particular in the perspective of a potential acquirer, discriminating between a minority vs majority stake deal.
Finally, as long as the valuation is a cognitive and social process aimed at giving an opinion, it appears that in the context of family businesses some cognitive biases could play a part, some-what distorting the neutral and balanced assessment of the firm’s value by the expert in charge: confirmation bias, halo effect and anchoring.

Keywords: business valuation ; family firms.