Succession Problems Impact Buyers Sellers And The Transaction Experts In The Middle / by Kerri
As the baby-boomer generation ages, a multitude of succession problems are becoming evident. Each one compounds the effect of the others. Here are just a few that pertain to the small-medium size business market that you should take note of now:
- In both the US and in China the children of baby-boomers are much less likely to take on the family business.
- According to family business expert Frank Schneider, statistics reveal that only a third of family businesses are successfully transferred to the next generation.
- Recent research out of the Family Firm Institute and Babson University for Entrepreneurship report that the 70% of family businesses do not survive to the third generation.
- A survey by PricewaterhouseCoopers finds that one out of every two company owners plan to sell their business within the next 10 years.
- Many baby boomers have decided to step back and re-evaluate their lifestyles. A typical seller today is more likely to be in their 40s or 50s rather than their 60s or 70s, as was the case 10 to 15 years ago.
- People 55 or older own 30 percent of all businesses with employees.
- Businesses with employees are expected to grow in number by 22 percent every five years
According to David Fields, president of San Diego-based IBG Capital Markets:
“The intersection of private equity money and baby-boomer demographics means that [we] can conservatively assume a threefold increase in transaction activity for companies with employees as boomers move into retirement.”
As much as the statistics paint a picture of abundant opportunity for buyers and transaction experts, it’s not the same for sellers. One report out of British Columbia, Canada states that only 10% of all deals actually get done. The rest languish because the seller is not prepared or the sellers wait until it’s too late.
JOHN ZAYAC president and founder of IBG Business Service, Inc. in Denver, CO gives great advice when he states:
“The best advice I could ever give to the owner of a middle-market company is this: Plan for the sale of your business from the day you start it. Most business owners exit their business with less than six months of advanced planning, consequently receiving a mere 50 percent to 70 percent of the business’ potential value.
Appropriate planning, well in advance of a transaction, will allow a business owner to maximize company performance.”
The downside for sellers is that there is a window of opportunity before the supply of businesses exceeds demand. The vastly increased supply of small-and medium-sized businesses available because of baby-boomer retirement/reinvention will drive down valuations and give new leverage to buyers instead.
There are supply-demand implications of millions of businesses coming onto the market in a concentrated period of time. Owners are not factoring these implications into their exit planning in terms of timing, valuations, opportunity or successors.