Succession planning is increasingly gaining traction as more business owners in the baby boomer generation seek to retire, often without a clear successor in place. This trend has opened significant opportunities for investors, particularly in sectors where generational transfer challenges and an aging owner demographic are prominent. Here are some current trends and strategies for investors looking to capitalise on these shifts:
1.?Growth of Family-Owned Business Transitions
- Trend:?Many family-owned businesses lack successors willing or prepared to take over, creating a gap where external buyers can step in.
- Investor Strategy:?Investors can approach these businesses with buyout offers and provide management support or restructuring assistance to ensure a smooth transition. A “roll-up” strategy, consolidating multiple smaller family businesses within a sector, can yield synergies and economies of scale.
2.?Emphasis on Digital Transformation
- Trend:?Owners looking to sell often need digital modernisation to make their business more appealing and efficient. Businesses with outdated tech infrastructure may struggle to attract buyers or remain competitive.
- Investor Strategy:?Investors can target businesses that need digital transformation, bringing in resources to update systems, integrate digital marketing, and streamline operations. This not only boosts the valuation but also future proofs the business, increasing its attractiveness to potential successors.
3.?Increased Focus on Environmental, Social, and Governance (ESG) Factors
- Trend:?There’s a growing emphasis on sustainable and responsible business practices. Buyers and successors are increasingly prioritising businesses with a strong ESG profile, seeing it as a way to manage risk and ensure long-term value.
- Investor Strategy:?Investors can assist in enhancing a business’s ESG credentials before or after acquisition, which could make it more attractive in the market. Green or socially responsible credentials can significantly increase appeal to a broader audience of buyers or investors, especially among the younger generation.
4.?Rise of Professionalised Management
- Trend:?Many businesses were historically run by owners with limited professional management experience, particularly in smaller family firms. Transitioning to professional management can stabilise the business and improve operational performance.
- Investor Strategy:?Investors can add value by placing experienced management teams in these businesses, thus increasing operational efficiency and positioning the company for growth. Establishing a solid governance structure is also key to boosting the company’s appeal for succession and future acquisitions.
5.?High Demand for Niche or Specialised Skills
- Trend:?Businesses with specialised knowledge or a niche market position are attractive for their defensibility and loyal customer base. However, finding successors with the same expertise is challenging.
- Investor Strategy:?Investors can identify and support niche businesses by offering industry-specific expertise and finding ways to leverage that specialisation for competitive advantage. They could even structure deals that retain key employees to preserve institutional knowledge and ensure stability during the transition.
6.?Use of Earnouts and Deferred Payouts
- Trend:?Succession deals increasingly use earnouts, deferred payments, and other structures that align the selling owner’s incentives with the business’s future performance.
- Investor Strategy:?Investors can use these structures to reduce initial capital requirements while maintaining the previous owner's involvement and expertise. This phased approach also lowers the risk for investors and gives them time to fully assess the business’s potential.
Investors can maximise their advantage in these trends by focusing on sectors with a high rate of business owner retirements, such as manufacturing, professional services, healthcare, and trades. Also, building a reputation for seamless, supportive transitions will make investors attractive partners in succession planning, providing both the stability and growth potential that sellers and successors are looking for.
