Succession Planning – What Business Owners are Telling Us
Michael S. Blake, CFA, ASA, ABARDirector of Valuation Services
Habif, Arogeti & [email protected]
@unblakeable770-353-8373
Disclaimer
• It is assumed that grownups are watching this presentation and are capable of making their own decisions
• If you’re not a grownup, go back to playing CandyCrush
• The views expressed in this presentation are mine
• Don’t ever do anything without advice of legal counsel
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Succession is Inevitable
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Sometimes it Works Well
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Sometimes it Doesn’t…
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Sometimes It’s Ugly
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Sometimes It’s Well-Practiced
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Sometimes It Takes too Long
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Sometimes We Hardly Know the Difference
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And Sometimes Succession Isn’t Realistic
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But It Always Has Far-Reaching Implications
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Why Start Now?
• Average age of business owners = 55 years• Owners intending to retire in next ten years = 81%• Owners with no exit strategy = 75%
Source: Smyrnios, K.X., Dana, L., The MGI Family and Private Business Survey 2006; RMIT University(October 2006) Melbourne, Australia
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Critical Date - 2020
• The tail end of the Baby Boom will be 56• Supply of businesses will compete for buyers• Seasoned management professionals (in
prime of their careers) will be in high demand
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About the Survey
• 1,650 of respondents in 55 countries (38% in North America)
• 55% of respondents aged 49-67• 70% of businesses under $10 MM in revenue• Respondents have completed a succession, are in
the midst of succession or have not yet started succession
• 80% male• 59% are chief executive
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What Causes Succession?
24%
16%
15%10%
9%
26%Voluntary RetirementNext Generation ReadyOwner HealthEstate PlanningDeath in FamilyOther
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“Other”?
• Buy-sell agreements• Lawyer pestering them• Change in business conditions• Owners skeptical that succession is achievable
in practice• Almost never caused by a divorce
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Most Important Considerations
• Family Harmony
• Continuity of the Business
• Ongoing Jobs for Employees
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Priorities Evolve During the Process
Price decreases in importance over time, while importance of family harmony and employee job security increases…
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Implications
• Valuation services are easiest to sell at the start of the succession process
• Compensation services are easiest to sell toward the end
• Family therapy is probably always in demand
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What Happens After Succession?
57%27%
16%Business is Kept in theFamily
Business Will be Sold
Unsure
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Implications
• Most owners prefer not to sell• Owners realize that in the modern “job
market”, greatest gift to posterity is a cash flowing business
• Value isn’t as important to business owners as operational continuity and viability (sorry, investment bankers and PE guys)
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Who Will Be the Next CEO?
44%
36%
20%
Family Member
Non-family Member
Not Sure
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Implications
• If you can show you run companies well, you’re going to make a lot of money
• If family is already working in the company, chances are the successor will be family
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Most Trusted Advisors
1. Accountant2. Family Member (Spouse)3. Attorney
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Most Important Preconditions for Succession
15%
15%
14%
14%
12%
30%
Succeeding Generation FeltTrusted and Empowered
Secure Suitable RetirementArrangement
Identify Best Person for theJob
Strategic Positioning ofBusiness for the Sale
Equitable Inheritance amongFamily Members
Other
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Most Important Activities During Succession
15%
13%
12%
11%11%
38%
Give Family Members Understandingof Demands fo the Business
Identify Best Person for the Job
Formal Discussion of a SuccessionPlan
Strategic Positioning of the Businessfor Sale
Equitable Inheritance for all FamilyMembers
Other
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Most Important Outcomes After Succession
15%
13%
13%
13%12%
34%
Formal Documentation of aSuccession Plan
Succeeding Generation FeltTrusted and Empowered
Equitable Inheritance for allFamily Members
Securied SuitableRetirement Arrangements
Identified Best Person forJob
Other
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Most Critical Challenges Faced
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The Answer is ????
• Even in a fairly large sample set, priorities are unclear
• Priorities are in motion• If you’re frustrated trying to talk to someone
about succession, you’re not alone• This research positions you to perhaps ask
better questions
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Some Personal Observations
• Planning is not a big part of Southern culture, especially in the older generation
• Preserving “legacy” less a facet of Southern culture
• Less desire to “support” children• The Baby Boomer aging thing is overplayed • Over time we should see more intrafamily
succession
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Thanks!Questions?
Michael S Blake, CFA, ASA, [email protected]@unblakeable