The Unavoidable Wave of Family Business Divestiture and Merger Activity

Despite the sluggish recovery there remain some silver linings to the dark economic clouds, especially over the coming decade. The certain fiscal worry on the minds of many …

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Despite the sluggish recovery there remain some silver linings to the dark economic clouds, especially over the coming decade. The certain fiscal worry on the minds of many Americans includes the demographic shifts in workforce supply. It is expected that nearly 10,000 Americans are retiring a day. This retirement trend is expected to continue for the next 19 years as massive amounts of “boomers” shed the shackles of work and enter into the golden years. This retirement boom is expected to strain both remaining workers and the pensions they fund. Limited existing workers and shrinking pensions may threaten and/or undermine the expectations of some seniors’ retirement plans. And while reformations will still remain to keep us within solvency, opportunities are always present, even in the worst scenarios. In this case, M&A activity is expected to reach a fever pitch.

The Largest Transfer of Wealth

Some are calling this 19-year event “the largest transfer of wealth in the history of the world.” Baby boomers have spent the last 30 to 50 years amassing savings and wealth like never before in the history of mankind. While a large percentage of those in retirement age have seen major dips in their nest eggs over the last decade, there are still a judicious few who have been the recipients of massive stock growth coupled with successful careers, including entrepreneurship and business ownership. Said businesses will require new shepherds to carry them further into the 21st century. 

Unfortunately, some of the rising workers in the next generation have not come forward to take the reins of many family-owned businesses. With retirement comes a transfer of knowledge, expertise and assets. In the case of family businesses, there is often a disconnect. That is, entrepreneurs’ children are unable or unwilling to take the responsibility of leading the family business into the next generation. The represents an opportunity to purchase cash-flow generating assets as the current working generation retires. In some cases, acquiring companies may be able to purchase such assets at rock-bottom prices. In most cases, it will be a situation like that described by Warren Buffett: “price is what you pay, value is what you get.”

Get Properly Positioned

Anytime liquidity events occur and massive amounts of wealth are transferred there are multiple ways to profit. It’s not a winner-take-all affair. To profit from the unavoidable wave of business divestiture, there are a few places which will position many businesses, families and business owners so as to be prepared when the tide comes in.

First, find a place to plug-in on the M&A value chain. If savvy investors can see many businesses, of necessity, will be sold in the next two decades, it would be well-informed and smart to position oneself somewhere along the process. This could include buy and sell-side investment banking, business brokerage shops, corporate consulting, tax advisory, private equity and financial planning (for after the deal’s done). Different expertise is required for each area, but the M&A process touches them all.

Second and finally, stay educated, informed and abreast of changes. While businesses sales and divestitures will occur across a broad spectrum, being aware of the most profitable markets where value can be extracted will perhaps prove most beneficial. Knowing where and how to strike will require tacit knowledge and require a unique discipline to stay within particular parameters. In many cases, it will mean knowing processes, procedures and people in specific target market niches.

The impending crisis looms, but since little have control over the absolute direction of politics and fiscal policy, it is often wise to find how we may best be served by changes in the tide. If positioned well, the coming wave of small and middle-market M&A activity will prove a boon, even in the midst of a potentially dark crisis. And for those who are prepared and understand profitable niches, the surf may prove adventurous.


Nathan Nead is a financial writer for
Deal Capital.

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