Recently the National Center for the Middle Market (NCMM) in conjunction with Fifth Third Bank released a report on a survey they conducted earlier this year. The study is entitled “Owner Transitions in the Middle Market - When Business Gets Personal: A Business Owner’s Perspective on Selling a Middle Market Company.”
The report is extremely comprehensive and I would recommend that everyone who is considering an exit from their company download and read it as it is full of key thought leadership for entrepreneurs regarding the exit process.
I thought I would share a few segments of the report with our subscribers; key concepts such as this:
When a business owner sells all or part of the organization into which he or she has poured blood, sweat, and tears, it is no surprise the transition is much more than a business transaction. It is an extremely personal event in the business owner’s life. Indeed, personal considerations impact every aspect of the sale, from key drivers to how owners prepare for the transaction to the concerns and challenges along the way. In many cases, these personal factors bear more weight and affect the sales process to a greater degree than purely business or economic factors do.
As we have said many times in past Insight Posts the final decision to actually exit can be quite emotional and requires lots of input from friends, family members, and trusted advisors. Based on our combined decades of deal making experience, we have found that although “money” is often the initial motivation in an exit plan, in the end, emotional items such as professional legacy, employee well-being, relationships with clients and community often become paramount. This is why our deal teams are so successful: We take the time to truly get to know the client before (and during) the exit journey and in many cases, become more of a family counselor than a financial engineer!
EXTERNAL ADVISORS ARE CRITICAL TO THE SALES PROCESS AND TO ADDRESSING KEY AREAS OF CONCERN.
Most middle market business owners who sell do not attempt to address all exit planning issues on their own. They build teams of advisors around them and report the critical importance of having access to the right advice during the process. Ultimately, most sellers with an experienced advisory team express a high degree of satisfaction and success with the transition. They are pleased with the price received and the ease of the process itself, and are often eager to put the funds to work in new ways.
Middle market business owners do not attempt to go it alone when it comes to selling all or part of their businesses. Rather, they work to build the right advisory team who can help them with navigating key concerns and ensuring the objectives for the sale are met.
These owners are likely to include external consultants in their inner circle as they contemplate the various aspects of the sale process. On average, advisory teams typically include four resources representing a mix of high-level business leaders and trusted external consultants. Lawyers and investment bankers are the most popular choices from outside the business. Many owners also involve other external consultants, such as their corporate banker and/or their tax advisor, in the process.
Again, we have discussed the “value” of professional guidance during the exit journey several times over the years. The long-term success of our firm is driven by our Core Values and how we approach every engagement with the same goal: to help the client find the optimal buyer at the optimal price and optimal deal structure. Unless you have sold a number of companies in the past, most entrepreneurs do not clearly value the “value” of a professional middle market investment bank being at their side. Here is what a few of our clients have told us about the importance of our participation in their journey:
The theme in these videos is very similar: You really only get one opportunity to exit optimally and having an M&A advisory firm with you along the way makes a huge difference.
OWNERS LACK A CLEAR UNDERSTANDING OF EXACTLY HOW FAR EXIT PROCEEDS WILL GO (or I would add = need to go)
This key component of the financial planning process is often not explored in enough detail. It’s one thing to consider the lump sum of the cash-out, but it’s another matter when that sum begins to be allocated to a long list of personal goals and objectives. Because many owners have plans to invest a portion of the proceeds in other businesses, this process involves a full risk analysis and an understanding of how investment risk can impact other priorities.
When owners take the time to consider the big picture, they often find they are not as confident as they would like to be in how their finances will ultimately look, both for themselves as well as for the next generation. To be the best possible stewards of their wealth, it is critical for owners to be proactive in optimizing their financial planning and to invest as much (if not more) time in preparing themselves as they do their companies.
Given the importance and complexity of personal preparation for a business transition, excluding wealth advisors is often a particularly costly oversight. Survey’s find that owners who surround themselves with expert advisors in all areas of a transition—including the personal side—are much more confident and overall better prepared for their futures. A sale of a business is probably one of the most important times for great advice. Bringing in trusted personal financial and wealth advisors who are most in tune with the owners’ individual objectives and concerns is key to a transition that works on every level.
Generational is rather unique in the middle market investment banking industry: We provide a full range of services designed to both prepare the company for sale (Generational Consulting Group - GCG) but also an award-winning wealth management team (Generational Wealth Advisors - GWA) to help you protect and grow your newly found liquidity.
We have found that the sooner we get GWA involved with our clients, the smoother the deal typically will go. One major issue: most business owners do not have qualified financial advisors working with them (why would they, they are non-liquid) so GWA can get involved early in our process to help the client determine just how much capital he/she will need post close for the next phase of their lives. This is so very critical and can’t be overstated. If you are considering your exit, you need to find a wealth management firm that can work with your investment bank to ensure a smooth (and safe) transition.
Again, special thanks to NCMM and Fifth Third Bank for conducting this valuable, insightful survey on business owner exits. We too offer educational services like this at our Generational Growth and Exit Executive Conferences. These are of tremendous value, are complimentary, and will provide you with a wealth of information about what you can do to maximize your exit today, tomorrow, or even five years from now. To find one near you, use this link.
The Study’s Research Process:
To better understand how owners’ personal considerations, feelings and perceptions impact every aspect of middle market business transitions, the National Center for the Middle Market, in partnership with Fifth Third Bank, surveyed a group of 300 middle market executives. The sample included 75 owners of privately held middle market businesses, who benefited from the sale of all or part of their companies in the past 24 months. Of these 75 organizations, more than half are family-owned, with more than three-quarters of these family-owned organizations in their second, third, or fourth generation of ownership at the time of the sale.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2022 Generational Equity, LLC All Rights Reserved
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Consulting Group’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Consulting Group to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Consulting Group is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.