November 29, 2021
SeaFort Blog: Strategy For Succession - A Partnership Between Family Business & Private Equity Investors
Generational Wealth Creation in a Family
Intricacies of a Family-Owned Business
Everyone knows a baby boomer who is keen to retire but can’t just walk away from the family-owned business they have spent a lifetime, or generations, pouring their efforts into. It is common knowledge that effective succession planning is necessary for ensuring an organization will endure through time, however, not everyone may appreciate the difficulty of preparing for succession, and the changes that come with it.
Succession may come with many consequences (both positive and negative) to a company, including to its culture, strategy, internal and external relationships, and financial performance. When a succession event is announced in a publicly traded company, the consequences are easy to notice because the stock price of the business typically fluctuates in response to the news. That level of transparency does not apply to a private family business, so while consequences still occur, they are not as obvious to the outside world.
There is an added level of complexity in family businesses because relationships are considerably different from those in other types of organizations. The roles of individuals within the organization are multi-functional, often balancing the role of employee and family member. Complexity arises because the people are typically interdependent (what affects one affects all), interconnected (they share knowledge, information, ideas, etc.), and interrelated (they share genes, experiences, desires, etc.). This creates multiple levels of responsibility. For example, the leader of the family business is not only responsible for the well-being of the company, but often bears the responsibilities of preserving the family legacy and building or preserving generational wealth. Thus, retirement becomes a strategic issue that impacts not only the business but the family network and legacy.
Ownership Transition
A business transition study published by BDC found that almost 60% of Canadian small- and medium-sized enterprise (SME) owners are aged 50 or older. Over 50% of these business owners plan to sell their business in the next five years. Of the business owners looking to sell their business, 52% are considering a sale outside of the family and 26% are considering family succession.
Partnering with a private equity investor can be an exciting solution for succession, both for the owner looking to retire and/or for the next generation of leaders looking to take the reins. A private equity investor can facilitate a business owner’s transition into retirement and help them realize the value they’ve created by untying their net worth from the business. Likewise, a private equity investor can provide access to capital for the younger generation to acquire the equity stake from their predecessors and help the business grow.
Achieving Growth Objectives
KPMG’s recently released Business Outlook Poll indicated that 46% of SMEs in Canada identified M&A as one of their most important strategies to achieve growth objectives over the next three years. Most of the participants in the poll (71%) also identified organic growth as an important strategy.
The access to capital and other important resources a private equity investor can provide, like transactional and operational expertise, can enable a business to meaningfully accelerate growth. Choosing the right private equity investor to partner with can be difficult. With any partnership, it is important to evaluate the fit. Some things to consider are the firm’s culture and experience, the strategies the firm tends to employ, and the ideal size of investment into the family business.
Why Partner with SeaFort Capital?
SeaFort Capital is a private equity investor who understands that business owners often struggle with succession planning and ownership transition. SeaFort draws on the values of its founding families, the Sobeys and McCains, to operate in an approachable, down-to-earth manner that builds on its Maritime roots. We are committed to respecting legacies while building genuine partnerships with management teams.
Contacting us through our website could be an exciting next step in succession planning for your family-owned business. We partner with businesses that have earnings before interest, tax and depreciation (EBITDA) of $2 to $15 million and are operating in one of the following industries: equipment service, niche manufacturing, value-added distribution, or business services.
About The Author
Sonya joined SeaFort in 2021. She previously worked in enterprise risk management at a publicly-traded energy company and prior to that worked in corporate banking at Scotiabank. Sonya holds an MBA from Dalhousie University and a Bachelor of Science degree from Acadia University.