Family Business and Private Equity: Conflict or Collaboration? Harvard Case Solution & Analysis

Lack of Expertise

Because the family members are preferred for the key management position even if more experienced non-family members are available within the firm; hence this sort of attitude of the family business owners, de-motivates the skilled professionals from joining the family-owned businesses, which results in a lack of expertise in the business.

Conflict between management and owners

There was a conflict between the CEO of Messer Griesheim and partial family owner of the business, Stefan Messer, which made the business deprived of opportunities for divesting the business from its corporate parent. As the Messer Griesheim was not involved in the decision-making process for sale of Messer Griesheim company therefore, he used his voting rights to veto the decision of CEO for selling the business to an organization, which was identified by the CEO.

Success Trends in Family Business

There has been a downfall trend in family-owned business, and research reveals that this has resulted due to the conflicts among family members that is a typical feature of a family business that results in the failure of their typical family-owned businesses. In the case of Messer Griesheim, recent period of recession has resulted in bankruptcy of some of the family-owned businesses in Germany.

Three Cirlce Model

A typical family business is formed when business is owned by a family, three circle model identifies these three factors of a typical family business and the potential impact they can put on the business by having different positions as per the three circle model.

In Messer Griesheim, Stefan Messer is in a position that covers all the three factors of the model. Stefan has occupied number one position as shown in the model. Number fourth position is occupied by his mother, Ria Messer as she holds no share of the business but takes part in the business operations and second position is with the equity investor, Capital Partners (ACP) and Goldman Sachs, who hold 66.2% of the shares in Messer Griesheim but they are not involved in running the business, at the sixth position there are customers, suppliers and employees.

As the business grows and strategic changes take place; the positioning of individuals keep changing in the three circle model. Since incorporation of the family business by Adolf Messer, many changes took place which resulted in changes in the ownership status of family from fully owned family business to partially owned business which affected the positions in three circle model,

Affect of Three Circle Model Positioning

Ownership

The ownership positioning of Messer Griesheim was among three parties, which included member of Messer family, Stefan Messer and two equity investors, Allianz Capital Partners (ACP) and Goldman Sachs. Equity investor Allianz Capital Partners (ACP) and Goldman Sachs wanted to exit the Messer Griesheim by auctioning out part of the Messer Griesheim in order to realize their part of the investment. Meanwhile, Stefan Messer wanted to gain full control of the business; hence Stefan was involved in the business operation along with his mother Ria Messer in order to improve its operations and financial position.

Business

Since incorporation, Messer Griesheim was very successful in business and it profits were increasing while it extended its operations to other regions. After the merger of Messer Griesheim’s ultimate owner, Hoechst with Rhone-Poulenc to form Aventis, during December 1999, the business operations started to fade and its financial position deteriorated from that point. This happened because of the Aventis’ strategy to divest Messer Griesheim operations, which diverted the top management’s focus from improving business operation to divesting activities of Messer Griesheim.

Family

Since only two members of Messer family were involved in the Messer Griesheim business; hence there was no such impact on business operations due to the family matters. However, Stefan Messer was not able to demonstrate his experience and knowledge for the successful running of business operations because of the involvement of Rudolf as the CEO of Messer Griesheim.

Other Factors

In addition to the three circle model, there exist some other factors affecting a family business such as a legal requirement of the territory where family business operates. In the case of Messer Griesheim, corporate governance was a legal requirement as the Messer Griesheim was partially a family owned and was partially owned by the equity investors. Compliance with corporate governance required Messer Griesheim to form two boards and a committee to look after the business operations.........................................

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