The succession tsunami that never happened

For the past decade, business experts have been warning of an impending tsunami. 

The theory went something like this: As baby boomers hit 50 or 60 years of age and start thinking about retiring to somewhere warm, Australian business was supposed to be hit by a wave of owners heading for the exit.

These business owners would either sell (meaning there would be thousands of companies on the market, all at once) or they would pass their business on to their family (creating a wave of succession challenges that would need to be carefully managed).

Entire companies were set up in preparation for the wave. Consultants and accounting firms set up business units dedicated to succession and business exits and then warned gravely that those who didn’t plan would be in deep trouble when the wave hit.

Only one problem – the wave still hasn’t arrived.

According to The MGI Australian Family and Private Business Survey, compiled by RMIT University and commissioned by accounting group MGI, the boomers are staying put.

Almost 60% of respondents from the 5000 companies surveyed were aged over 50, with 33% in the 50-59 age bracket and 25% in the 60-69 bracket.

While 61% said they would have plenty to do in retirement and 67% said they had the cash to do so, the percentage that would consider selling is, in fact, falling.

In a similar MGI survey in 2006, 75% of owners said they would consider selling now if they received an offer, but in the latest survey that figure had dropped to 61%.

Even more tellingly, 25% of the respondents said they had been approached with an offer to buy the business in the last 12 months but they did not sell.

There are a range of issues that have lead baby boomers to stick around, including:

• A lack of exit plan – just 33% of respondents felt they had an adequate plan.
• A lack of a successor – just under two thirds said the next generation was less interested in running the business.
• The GFC, which appeared to lead many owners to remain at the helm to steer their business through difficult conditions.
• Lower asset prices, which may be prompting some business owners to hang on for better economic times.

MGI’s Sue Prestney suggests a lack of qualified buyers may be another issue, but the fact that 25% of respondents received offers to buy suggests there are deals out there.

I wonder if all the talk about the wave of business sales may have also weighed on the minds of some entrepreneurs – who wants to be selling their business at the same time as everyone else?

I am not sure we are ever going to see the sort of mass exodus many of us have been expecting. But as family business owners age and their families shy away from taking the reins, it is likely that the number of family businesses on the sale block will increase, and perhaps sharply.

Smart entrepreneurs who do have an exit strategy in mind need to act before their niche becomes flooded with businesses for sale. Have a plan, nominate some potential buyers and start talks with them.

Keeping your business sale-ready is important, tsunami or no tsunami.