Business owners face three alternatives as they approach retirement: pass on both the management and ownership of the business to the next generation, pass on the shares but bring in professional managers, or sell the business. The results of a PricewaterhouseCoopers Family Business Survey conducted in 2012 indicate that 41% of the respondents intended to convey their stock and management of the business to their children. More than half of these respondents were unsure whether the next generation had the requisite skills for this to successfully occur. Twenty-five percent planned to bring in professional managers due to the perceived lack of skill of the next generation. Twelve percent were undecided and the remaining 17% planned to sell the business. With results such as these, it is no surprise that succession planning in family firms has received significant attention.
So what options are available to the retiring business owner? It would appear from the PwC data that alternatives to passing the controls to the next generation need to be examined. One viable option is to sell to a private equity group. Not only can private equity investors enable the resolution of succession problems, their involvement can lead to improved operating efficiencies in the firm. Private equity provides capital in exchange for an equity stake in a potentially high growth company. While the family may cede control, private equity can provide significant support to help grow the business as well as providing liquidity for those retiring. The process of identifying and selecting the correct private equity group requires time and the expertise of trusted advisors.
Posted by David Sinyard.