Australian medical technology firm sells to private equity after children decline family business offer

The head of an Australian medical technology business has sold a majority stake in the company to an American private equity firm, when his children said they had no interest in taking on the business for themselves.

The situation is a dilemma several owners of family-based businesses encounter – what to do when the next generation doesn’t want to take the reins.

Recent surveys of family-based businesses have found succession planning is an issue that many family businesses tend to avoid, either because the owners assume their children will be on board, or they just haven’t gotten around to organising a plan.

But Cardioscan founder and chief executive Paul Kelly says the decision wasn’t very dramatic. “We didn’t have any issues,” he told SmartCompany this morning.

“Our business has expanded dramatically in the past 12-18 months, and our analysis was that we needed to inject quite a bit of capital into the business to support that expansion.”

Some of the company’s clients include Primary Heath Care and Healthscope.

Kelly says with his three children uninterested in running the company, he turned to private equity – which ended up providing him with several solutions at once.

“There’s an accumulation of benefits with private equity. For one, I think private equity doesn’t come with pre-existing notions of how the business should be run.”

“Certainly they come with capital management, they’re a financial institution, but they’re keen for the management to stay in place.”

Kelly sold an 85% stake in his business, which sells and provides cardiac testing services, to Harbert Australia Private Equity, which is a division of the American Harbert Management Corporation. The deal provides Cardioscan with a market value of $13 million.

Kelly says it was important to him that staff felt as though nothing major had changed.

“Your staff are one of the main reasons you are successful,” he says.

Kelly says the private equity contribution gives him the chance to analyse how the company runs.

“You have to step away from the business and actually go through the rationale for the reason behind why your company is a good business,” he says.

Kelly says he was uncomfortable with the idea of selling to a non-private equity company, as they “could have very firm ideas about how they’re going to run a particular business”.

Kelly founded the business 28 years ago, and will remain involved until the end of the financial year. He’ll still stay within the company but in a more strategic position.

The sale is an example of the importance of succession planning in family businesses, where owners’ children may not want to continue running a company.

A recent survey released by Family Business Australia and conducted by KPMG found that 57% of family businesses are concerned about the motives of their successor, and whether they could handle the business.

But Kelly says it wasn’t a matter of keeping the business in the family, but doing what was right for the company, and for the staff.

“I looked at the options – my age included – and decided what to do for the business as a whole.”

 

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