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What’s Left After a Family Business Is Sold?

Four years after the sale of his family’s business, Malt-O-Meal, John Brooks said he still felt a void in his life.

His grandfather had started the cereal maker in 1919, and his father ran it until his death in 1988. Nonfamily executives expanded it into the fourth-largest cereal producer in the United States before Post Cereal bought it for $1.15 billion in 2015.

Since the sale, the three branches of the family have gone their own ways, Mr. Brooks said. They are no longer bound by a company or annual meetings or feel the pride of going through the cereal plants around Minneapolis. The relatives are managing their share of the proceeds on their own.

It’s not as satisfying, Mr. Brooks said. He wishes the family still owned the company.

“It was a fascinating challenge to have a business with great products, a great board and great employees up there really hustling to grow the business,” he said. “I have an M.B.A. in finance, so I was prepared to manage the money. But it’s just not as interesting.”

Having a pile of money in place of a company, with all of its stress and complications, would seem like a relief. But a company often holds families together by giving members a shared identity and conferring a status in the community established by previous generations.

Without the company, the family’s perception of itself and its purpose can change, and it is often something that members are not prepared for. Their focus was on running the business and then on the sale; little thought went into what comes next.

“This is going to become more and more relevant because of the aging out of baby boomers,” said Michael Cole, chief executive of Cresset, which manages money for large wealthy families. “The key to doing it successfully is how you prepare yourself and how you prepare your family. It’s really a lifestyle choice.”

If families do not do it right, splitting apart is almost inevitable. “A shared business becomes very much a glue,” Mr. Cole said. “When the business is sold, what we see in almost every situation is some family member splits away.”

Mergers and acquisitions involving family businesses are already happening at an increasing clip, said Rick Simonetti, head of wealth planning for Abbot Downing, a division of Wells Fargo. Owners are putting their businesses on the block or receiving unsolicited offers, often for more than what the families thought their company was worth, he said, citing an increase in referrals from bankers working to sell family businesses.

Most advisers say the sale of a family business should focus on the transition from operating a company to managing a portfolio of money, not on the money itself.

Sometimes the magnitude of the sale becomes an issue for a family’s identity, particularly if the acquisition price becomes public.

This happened to Sabrina Merage Naim when her father and uncle sold Chef America, the maker of Hot Pockets. Nestlé bought it in 2002 for $2.6 billion in cash when she was still in high school. The two brothers owned the entire company.

“Hot Pockets were well known and famous then, but I wasn’t prepared for the financial aspect of it,” she said. “Once the business sold and I went to school, people saw what that business sold for, and my friends said, ‘Oh my, you guys have money.’”

Ms. Naim credits her parents with talking about hard work and not money when she was growing up. It did not hurt that her father rolled his money into a family investment office that he operated as a business, not a passive investment vehicle that funded the family’s lifestyle.

She now runs Echo Capital Group, which uses the family’s experience in packaged food to invest in smaller food companies.

But some families focus more on the money than the traits that made the business successful, and fail to grasp the difference between an operating business and financial capital. Even if the proceeds from a sale are invested prudently, Mr. Simonetti said, returns will hit a ceiling.

“You’re not going to earn double digits across a portfolio the way you could with owning a business,” he said.

Mr. Brooks was one of 10 family members who owned the majority of Malt-O-Meal. He said he expected his children to withdraw no more than 1 percent a year of his share — still a large amount of money — so that the assets could continue to grow the way his family’s business did. But advisers say this strategy can be problematic for future generations.

“It’s really hard to have one generation exert these from-the-grave controls that will govern possibly unborn generations to come,” said Covie Edwards-Pitt, chief wealth strategist at Ballentine Partners. “It’s somewhat impractical.”

An approach like this, she said, also misses the importance of talking about family values. “People tend to think the answer is in the money when usually it’s not,” she said.

But agreeing on family values takes time. William Deary, who quit his job in publishing to help his wife, Cherilyn, start a home health care company, said they had made sure that their child, Kylyn, saw what they were doing.

Over 23 years, the family created Great Lakes Caring Home Health and Hospice, a company with more than 9,000 employees around the Midwest. Mr. Deary said his family received three private equity investments over a decade, allowing them to diversify their wealth gradually by the time they ceded control of the company in 2017.

But years before the sale, the family had been formulating a plan for its wealth that focused on family values but also held the members accountable. A family scorecard, for example, tracks their progress on 40 items that the family has deemed important, including working hard, investing wisely and the protecting its legacy.

Mr. Deary said the family used the scorecard to objectively answer the question: “Are we constantly trying to get a little bit better every day at what we do?”

As the wealth stretches out and families grow, those values can become a substitute for the company.

David J. Herritt, head of family office services at GenSpring, a unit of SunTrust Private Wealth Management, said continuing education about the family’s values, particularly when the company was gone, allowed successive generations to understand where their wealth came from.

Those values often work best when they are broad — honesty, integrity, hard work — and not so specific that family members chafe. “The loose binds bind best,” Mr. Herritt said.

Family relationships can suffer when there are no shared values but strong financial connections, like a large trust or partnership that manages the wealth.

“If the relationships fall out but they’re still connected financially, that opens the door to litigation,” said Amy Castoro, president and chief executive of the Williams Group, which counsels families. “Things can really go off the rails then.”

Sometimes, Ms. Castoro said, it is better to let members of the family go their own ways.

“There’s this romantic notion that we all get together for Thanksgiving,” she said. “Maybe family members only want to get together once a year, or interact through the family office. That’s O.K., but make it explicit.”

Mr. Brooks said he saw his sisters, who live in the Minneapolis area, but was focused on having family meetings with his children and their spouses.

“I’m doing what my father did back in the early ’80s,” he said. “We’re talking about money. As owners, we worked hard to be an effective ownership group. Now, we need to be an effective management group. We have to manage the money.”


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