Vol. 1, No. 1, March 2007
Looming Management Gap in Small Business America
By Robert Befidi, Jr. and Mark R. Sinatra
When most people think of the issues facing the baby boomer generation,
the ones that come to mind tend to revolve around healthcare, social security
and retirement. Far down the list, and perhaps on the radar of only a
few, is the management gap that many boomers face as they make plans to
hand over their small businesses to equally capable hands.
During the last 30 years, 5 million businesses with annual revenues ranging
from $1 million to $75 million were founded, and it is estimated
that the baby boomer generation fueled much of that growth. As the owners
of these businesses approach retirement, some are faced with the challenge
of finding ideal successors or appropriate buyers who will maintain their
legacy and pick up where they left off with managing and growing the companies
they founded. These goals are not always complementary and may pose a
succession planning dilemma.
This is no small issue, especially when one considers that, according
to the federal government, small businesses generated more than 70 percent
of the U.S. domestic jobs created in the last decade. With approximately
40 percent of all family-owned businesses poised for a smooth transition
of control to the next generation, the continued prosperity
of scores of businesses and their employees will depend on actions taken
by business acquirers. Broadly categorized as Strategic Buyers (i.e. large
corporations) or as Financial Buyers (i.e. private equity funds), the
activities of business acquirers helped produce a record $1,565 billion
of mergers and acquisitions deal value in 2006, up 35.7 percent from 2005
and forecasted to grow even further in 2007.
Although strategic and financial buyers have been known for providing
good liquidity events for small business owners, their offerings have
typically included highly constraining provisions with respect to management
tenure, deal structure, and near term operational strategy. With an emphasis
on flexibility, a hybrid form of financial buyers, known as Search Funds,
have emerged during the last 20 years. Typically known for their speed
of execution, these sponsored buyers are management buyout teams backed
by experienced financial investors and operators that aim to provide small
business owners with the best of both worlds, namely, instant liquidity
and managerial expertise with a focus on maintaining the culture and identity
of the acquired entity, while preserving the founder’s legacy. In
addition, these sponsored buyers apply their experience, perspective and
energy to actively create sustainable value in the acquired enterprise.
The table below highlights some of the key differentiators between Search
Funds and mainstream Strategic and Financial Buyers.
What does this mean for the elderly baby boomers who are evaluating their
liquidity and succession strategy? These business owners need to carefully
evaluate the trade-offs associated with each type of buyer as they consider
their exit options. The looming gap in the management of small businesses
requires immediate action to preserve the vitality of this important part
of the U.S. economy.
About Gordian Capital: Gordian Capital LLC (“Gordian”)
is a private investment firm that seeks to acquire and actively operate
a privately-held company with revenues of $5-$50 million located in the
U.S. or Canada. Gordian is unique in that its managers will assume senior
management responsibility of the acquired company; thereby offering an ideal
exit opportunity for owners who seek to partially or fully remove themselves
from day-to-day operations. Gordian’s primary objective is to continue
the long-term growth of the acquired company, while ensuring that the owner’s
legacy and employees’ welfare are maintained.
To learn more about Gordian, please visit www.gordiancapital.com
Please feel free to contact us to learn more about Gordian Capital, LLC
or to discuss a specific investment opportunity. We pay industry-standard
fees for referrals that lead to the closing of a transaction. All material
is kept strictly confidential and returned upon request. We will review
and provide feedback for all opportunities we receive in a timely manner;
generally within one business week.
Robert Befidi, Jr.
Direct: (646) 620-1552
Direct: (646) 620-2054
© Gordian Capital, LLC. All rights reserved.