By: Darren Lelliott
For several years I have been watching the ‘succession’ problem for many SMEs owner operated by parties who are looking to retire in the next few years but don’t have a ready succession plan.
This has been known as an upcoming problem for over 5 years, perhaps you know the problem first hand. Of course one persons problem is someone’s business opportunity and the bigger the problem the bigger, or the more, the opportunities.
For this issue there will be several solutions and unfortunately for some caught in this trap no suitable solution. Recently I wrote that part of the solution would special purpose Private Equity funds, just like the Wolseley $300 million Private Equity fund announced to have closed yesterday.
Some of these PE funds will acquire SMEs in particular industries, appoint management, consolidate the businesses or undertake some vertical integration of suppliers, slap on a coat of paint appoint a good profile CEO (with an excellent performance bonus) and then float it on the ASX.
There are many variations to this story but that is a version which has been tested and then repreated.
Some will do this in terrible ways that are exploitative of the SME owners they buy the businesses off, the staff and suppliers and ultimately the investors buying the shares at IPO on the exchange. With only a concern for their own profits and a quick exit before the sticky tape used to pull the thing together lets go.
But not all. Some Private Equity funds, most likely the ones you will never hear very much about, will quietly go about their jobs with a long-term mindset that means they want to be around for a long-time and do repeated work with the same quality people, as such they will not do dodgy things for quick one-off profits.
Elcano is preparing to create just such a PE fund and has reviewed structures and had preliminary conversations to ascertain what will give the optimal outcomes for all parties.
We are certainly going to hear more about this wave of SME succession and PE firms. If you are in this position, or have some thoughts on what would give you and your stakeholders the best succession planning outcome then I would love to get your comments, maybe we could even have a coffee and discuss it further.