‘BABY BOOMER’ BUSINESS OWNERS WANT TO RETIRE
Business leaders from the so-called Baby Boom generation are now facing – or will soon face in the next few years – the challenge of business continuity. Some 40 years ago they took over their family businesses in a natural process of business succession, or they started up their business with their own ideas and a clear vocation for industrial entrepreneurship. Over the years they have contributed to the creation of wealth and employment, overcoming a multitude of difficulties and successive crises, and they have shown themselves capable of adapting to conceptual changes in management and business strategy.
For unavoidable reasons of age they now face a decision that has enormous personal, professional, and economic importance, i.e., what to do with their business now that the time has come to retire from the front line, pass on the reins of leadership, and make way for the next generations.
In a recent study by the Family Business Forum of the Basque Chambers of Commerce, the challenges facing family businesses were analysed within a comparative context with Europe. It considered that the main challenges facing family businesses are mainly twofold:
* Generational transition and succession at a business, family, and property level.
* Defining a business model that is in accordance with the size of the business activity.
The report reflects a reality that is worsening as a result of the economic situation, the uncertainty that surrounds the management of businesses, and the lack of business vocation among the younger generations.
In this environment, the thoughts of business owners / managers when considering ‘What do I do with my business?’ has two strands: business considerations and personal considerations.
* With regard to business considerations, the aim is to visualize the competitive position of the business, the challenges to be faced, as well as the management and financial efforts (as well as many others) that are required, together with the risks and the skills needed to overcome them in proper and timely manner.
* With regard to the private and personal considerations, it is necessary to determine if one has the will / motivation to carry it forwards, either oneself or one’s successors. Is this what the successors want or are able to carry forward?
The decision-making process is complex and features a significant emotional component, which is why it is necessary to have a disciplined approach. The decision will define the direction to be taken, with the business either remaining within the family, or with continuity being sought through the sale of the company.
Options for selling the business are varied and buyers may have an industrial background, a financial background, or they may even be the management or the employees themselves.
The decision as to who is to buy the company and what kind of transaction is the most appropriate entails assessing all the options, which are often influenced by the ties between the founder and the associates or employees of the business, or with customers, suppliers, the community, etc..
Financial Investors base their decision parameters on criteria that are essentially financial in nature, as well as on the return they can expect on their investment in accordance with the business’s potential for growth / profitability. They are not the operational managers of the company and as such their decision-making processes include an assessment of the management skills of the business and its teams.
The majority of Venture Capital Funds (current Private Equity Funds) are general rather than specialist, and for the most part they acquire significant majorities in the target company’s capital, although they sometimes consider minority investments subject to conditions or specific shareholder agreements.
In recent years there has been a surge in the number of so-called Search Funds, which are highly-suited to situations where acquiring the business entails taking over the management / leadership of the company.
There are many options among financial investors, and as such success can be highly dependent on selecting which potential candidates are suitable for the situation or the size of the company. Having a financial partner is a good option for relaunching a company, sharing a project and preparing it for a subsequent sale.
There are also sale options such as floating on a stock market that specializes in low-capitalization companies (BME Growth, Euronext, etc.), but these may have specific requirements and prior planning will be necessary.
With the alternative option of an Industrial Investor, the most important criteria are those regarding industrial capacity, markets, technology, and human resources, etc., while obviously taking into account aspects such as profitability and the financial situation of the company. Management skills and the company’s future project are aspects that a potential purchaser will generally accept as being its own responsibility.
Identifying the right purchaser and knowing its strategy and what factors are driving its interest in buying the company are the keys to success. In an open market an industrial buyer may be located anywhere and so it is essential to maintain a global vision while always taking into account the limitations / opportunities arising from the size, markets, and technology used.
In conclusion, the process for providing continuity to the ownership and management of a generation of business leaders is underway, and its success depends on the future of a large number of companies. Proper planning, not putting it off indefinitely, reflecting on the path to be followed with realism and conviction (without deluding oneself) are key to resolving the challenge of succession.
Discussing outlooks and experiences with other business proprietors who have already been through the process, asking for help and being able to count on the assistance of experts are further recommendations when deciding on how to resolve the challenge of ‘What do I do with my business?’ which will enable this new chapter to be faced with the peace of mind of a job well done.