Don Jaine, Seqel Partners discusses succession planning and the new three Bs in the December edition of New Zealand Management, the leaders magazine.
An extract below. Read more in the New Zealand Management Magazine:
“Lately our executive search company SEQEL Partners has been working with New Zealand Trade and Enterprise on how to solve the succession problem for business owners, an issue that has occupied my colleagues and business acquaintances for a number of years. Of particular urgency is the matter of the lack of leaders to succeed baby boomers in the New Zealand market.
In observing the market, it’s obvious that the famous line about business owners wanting ‘the boat, the bach and the BMW’ is outdated. The new, post-GFC paradigm is ‘bought, burned or buried’. That is, owners sitting around waiting for a buyer with a fat cheque are out of luck. Rather, their options in the new environment are the following:
- Bought – For the very good businesses (<10% of the market) that are always positioned as ready for sale, there will be opportunities for them to be sold to competitor organisations in the same sector. The private-equity-backed businesses and the effective business leaders who are prepared to invest in acquisitions and market consolidations are likely to be in acquisition mode over the next three to five years. However, they will be acquiring businesses for much lower earnings multiples than were prevalent in the mid-2000s, pre-GFC. The PEs that were paid in that period were fuelled by cheap access to large levels of debt, which is now no longer available.
- Burned – In our observation, most business owners are going to get ‘burned off’ by businesses that are well advised, probably involve private equity, and have smart, independent board members and very effective executive teams. These businesses will burn off a large number of participants in each market sector by simply being better led, better managed, more agile, and more effective and active users of technology – GPS, CRM systems, successful eCommerce and more. Many business owners of medium-sized organisations which are smaller participants in their sector will be burned off by more effective operators.
- Buried – Many businesses will die with the owner, leaving their families very little financial legacy, and a broken or broke business – and potentially a load of issues to resolve. While it might seem a sensible idea to potentially wind a business down by not investing and failing to grow in favour of the immediate return of a comfortable lifestyle, our opinion is that the upshot is in fact an uncomfortable one for the dependents of a business.