2017-02-22 / Front Page

LIC Partnership Breakfast Discusses Transfer of Business Ownership

By Thomas Cogan

At the Long Island City Partnership’s first breakfast meeting of the year the meeting moderator had a statistic of great interest, given the day’s topic, Transfer of Business Ownership.  On average, she said, a business is sold once every three years.  Talking about the sales of closely-held or family-owned businesses was a panel of five, including three who came from family businesses that were sold.  The other two have much experience with family-owned businesses and have dealt with families’ inward focus and inclination toward equality rather than the dispassionate evaluation of merit.  That and many other considerations, notably the advantages and perils of having not only the business but also its real estate, were taken up.  
The meeting moderator was Lidija Nikolic, marketing manager, Brooklyn, Queens and Long Island for Bank of America Merrill Lynch.  Speaking from left to right on the panel were Joseph J. Ferrara of Ferrara Brothers LLC; Bonnie Canner-Preiser of Cardinal Industries; Edward Rosenfeld of ITAC; Louis Vlahos of Farrell Fritz; and Mitchell Drossman of U.S. Trust.  Three of the five panelists, namely Ferrara, Canner-Preiser and Rosenfeld, worked in family-owned businesses, all as second-generation members.

 In 1986, Joseph Ferrara joined Ferrara Bros., a concrete manufacturer founded in 1969.  When the company was in its mid-forties he was interested in expanding it but found obtaining bank loans an onerous task and instead sought a merger.  He found it in April 2015, with the publicly-traded U.S. Concrete. The following year, the merged company purchased four other companies, and its stock value doubled.  Ferrara remarked that the resultant company is the General Motors of concrete.  As vice president and general manager of Ferrara Bros. LLC, he is also responsible for strategic development, marketing and industry/government relations for the New York city division of U.S. Concrete.

Canner-Preiser is the daughter of a Hungarian immigrant who founded Cardinal Industries, a games and puzzles manufacturer.  Before his death in 2014, her father “gifted” the company to his children.  She said he wouldn’t have approved of their selling it two years later but would be pleased that it is currently thriving.  In its history, Cardinal has worked with media licensors (American Broadcasting, Disney, Nickelodeon, Marvel).  Canner-Preiser worked in product development with them and in 2012 helped Cardinal break into the field of manufacturing and selling puzzles, soon becoming recognized as the leading maker of children’s puzzles in the United States.  Cardinal was sold in 2016 to Spin Master Ltd., a Canadian-based, publicly-traded company.  In its Cardinal Industries Division, Canner-Preiser is marketing vice president.
Edward S. Rosenfeld was for 15 years the chief executive officer of his family-owned furniture rental company, started by his father in 1968 and sold to Berkshire Hathaway Corp. over 30 years later.  In the aftermath of the sale, Rosenfeld turned to consulting for other family businesses in such matters as furniture leasing, real estate and energy management.  Since 2005 he has concentrated on closely-held business growth and transition.  In New York city he functions through ITAC, part of the Manufacturing Extension Partnership of the U.S. Department of Commerce.

In his afterlife as a consultant, Rosenfeld recalled for the audience the time when he and his younger brother began entertaining offers in the late 1990s and sold the business not long after.  Being advised, so to speak, by his later self, he would do things differently now, he said.  When actually advising those in situations similar to the one he went through, he sees the wisdom of some old business maxims:  Failure to plan is a plan to fail, but don’t follow any plan you don’t understand; big change can be good, so consider the likelihood you’ll be leaving your current occupation eventually.  Try to have fun, because life is short, he concluded.  
When Nikolic, the moderator, asked about estate planning, Drossman, a director of wealth planning strategies said it must be tailored to the special assets of the business and sensitive to its environment.  Vlahos said estate planning moves many to worry about taxes, but he said they should not be of paramount concern when the welfare of the family is at stake.  Ideally, a family wants to sell off with maximal advantage to itself, but the buyer is bound to be less interested in its concerns.  Rosenfeld said difficulties can arise if the owner of the business assumes to know what his children or siblings want, regarding property and such, when they might see matters differently.  Canner-Preiser said the sale of Cardinal was not difficult for her when she looked at the whole picture and found it acceptable.  
Ferrara said he started out in the family business, left for several years, finally returning.  He would encourage any member of a family business to follow an inclination to leave as he did, keeping in mind the possibility of return.  As for sale of the company, look first to the health of the company and don’t be doing everything for tax advantage.  Drossman said families are inwardly-focused, so within them, equality is key.  Evaluation of performance is not the same procedure within a family.  He said that at times when he has had to favor one family member over another he has wished for Solomonic wisdom.

Vlahos cited a successful family business, now in its fourth generation.  In that business, reward goes to the workers, no passive family riders being allowed.  It does not pay dividends.  At one point, it bought out a branch of the family.  In contrast, he brought up the case of another client, a family firm that stresses equality—which, he insisted, is different from fairness.  In the midst of this family is a slacker sibling who is always rewarded.  Vlahos’s caustic observation was that “when dad croaks,” the litigation will begin.

Drossman said that only one sale in six brings any part of a family into the successor company.  Most sellers have to face the likelihood that their respective buyers will discontinue any relationship with the families.  But Rosenfeld said that the statistical one in six that joins the buyer company may be desired by it and gladly absorbed into it.  He cited Ferrara as an example.

One of the panel’s late considerations was real estate owned by the family and how it affects the sale of the company.  Drossman noted that if it can enjoy steadily-increasing value over the years, a company’s buildings and/or grounds can make it much more valuable than the business itself.  Canner-Preiser said her family’s business was one thing but its building was a bonanza.  She said she’s fortunate to be living in Long Island City, thriving on it.  Ferrara, however, found real estate to be the rocky part that resulted from the sale to U.S. Concrete, but he’s working his way through it.  Vlahos warned that the real estate part must be negotiated strategically.  Selling property independently can result in disastrous taxation.

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