The Baby Boomer Transition Wave And What Your Investment Banker Can’t Do

transition wave

According to some estimates with more than 9 million companies owned by baby boomer owners up to $5 trillion in assets, could change hands in the U.S. in the next decade.

  • More than 80% of all middle-market businesses will have to make key strategic choices around the retirement of these baby boomer CEOs.
  • These companies are the inheritances for their kids, the legacies they leave for their communities. They have only one chance to get it right.

Apparently there’s a saying among private-equity funds: “We don’t buy companies; we buy management.” The choices entrepreneurs make along these lines will amount to the most important moves in their careers. The stakes are high.

The Right Deal Team is Vital or What Your Investment Banker Can’t Do for You

Some have equated a business owner going to the deal market alone to representing oneself at trial. That might be an exaggeration, but not by much. Building the right deal team — when appropriate for your goals, one that includes an Investment Banker, an M&A specialist Attorney, an Accountant, a Wealth Manager who can all work with you to fit the plan within the larger context of your wealth management strategy — is the key to realizing the full potential of an exit. If there were a mantra for the presale preparations, it would be: buyers hate surprises. Anything not explained upfront can be perceived as violating trust. We at VirtualBoard urge business owners to start contemplating a deal team as early as 1-5 years before going to market or actually engaging an Investment Banker. A VirtualBoard peer group offers one such vehicle.

What Your Investment Banker can’t do (Abstracted from a blog post by Ian Smith founder of the Portfolio Partnership)

  1. Make your value proposition into a compelling story.
  2. Find new niches for your expertize. We call it Red Zone thinking.
  3. Dilute customer dependency to ensure that no customer accounts for more than 10% of your sales.
  4. Ensure your lead generation is process driven, based on activity you know that works. The sales pipeline is aligned to all marketing initiatives.
  5. Build a reliable sales process that does not rely on recruiting superstars to succeed.
  6. Develop HR strategies to build a comprehensive management team to ensure the business is NOT perceived as a one-man band. Buyers will be nervous that the company can reach the next level without expensive intervention. Buyers don’t have a warehouse full of spare staff.
  7. Build processes that quietly lift margins each quarter.
  8. Tweak business models to produce sales annuity streams – supporting sustainable earnings growth.
  9. Transform the accounting records and operational systems to ensure you ace the diligence test one day.
  10. Build a metrics culture. The right stuff gets measured and corrective actions are taken.
  11. Develop a more aggressive approach to New Product Development. Ensuring that new products actually get launched.
  12. Build simple but effective internal training programs to show you can handle scaling your team.
  13. IPR, patents, and trademarks are well documented.
  14. Your competitive positioning is documented over time. Reasons for your successes and failures are understood.]

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