Doreanne Caruana / Rizzo Farrugia

Doreanne Caruana, Head of Corporate Advisory at Rizzo Farrugia & Co (Stockbrokers) Ltd, has called on family business Founders to avoid letting their “greed and ego” get in the way of the future of their organisations, encouraging them to be open to investment.

She was reflecting on a recent Malta Business Network session on mergers and acquisitions (M&A), particularly focusing on succession planning, unlocking shareholder value, new funding, and growth. These are the primary reasons as to why companies seek to “merge, acquire, or be acquired.”

Ms Caruana has served as Head of Corporate Advisory at Rizzo Farrugia & Co for the past four years, having worked at the company for another five years prior to that. She has professional expertise when it comes to European and Maltese financial services rules, regulations, and directives, as well as capital market transactions such as debt issues, initial public offerings, takeovers, and spin-offs. She advises on a number of corporate governance matters.

Doreanne Caruana MBN / LinkedIn
The Malta Business Network discussion that Doreanne Caruana attended / LinkedIn

In her reflections on Tuesday, Ms Caruana noted that M&A tend to face a series of challenges, especially those tied to culture clashes, generational shifts, lack of proper governance, emotional attachment, strategic fits, and also what she described as “two monsters,” greed and ego.

She remarked that it is unfortunate that some Founders, both of family-owned businesses and of others, seek to capitalise on future earnings and “insist on a valuation that they believe is rightfully theirs to achieve,” without taking note of the risk the acquirer is taking by investing.

“Then there is ego, which is what I typically call a small island syndrome. On an island where the degree of separation goes below the world median of six, some Founders would rather keep financing an unprofitable business than sell as to them and in their respective social circles, it can be construed as failure,” Ms Caruana pointed out.

She admitted that it is not easy for a Founder to let go of a business they have built and worked on for a number of years, “but it may be a bigger pity if such a business had to subsist because of the challenges encountered during the process.”

Malta’s economy is heavily dependent on family businesses, with these making up more than 70 per cent of the country’s SMEs. As a result, over the past few months, many business leaders have encouraged family businesses to better safeguard their future by creating succession plans and taking strategy very seriously.

Ms Caruana emphasised that family businesses need to put in place a number of “pain relievers” that can make it easier for new owners or to get new investors on board.

These include appointing a team of independent professional advisors, strengthening the Board of Directors with independent Non-Executive Directors (NEDs) or consultants, as well as being open and transparent in financial and legal due diligence.

Business leaders have repeatedly stressed the importance of having independent NEDs sit on Boards of Directors, highlighting that there is a “lot of value that can be sought from outside the organisation.” Businesses, especially smaller ones, need to open themselves up to independent people or advisors to give them insights on how they can seek further development and growth.

Ms Caruana also acknowledged that it is noteworthy that there are family businesses that can “visualise potential and scale in the takeover of other businesses.”

Sometimes, these businesses provide a “much-needed lifeline to businesses that would otherwise fail or stop being competitive,” she added.

“A willing buyer and a willing seller can make the deal work. It is all about the will,” Ms Caruana continued.

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