Mass Mutual Life Insurance produced an ownership transition survey about a decade ago. The survey results were based on feedback from family-owned businesses. While the survey is outdated in terms of the timeline, we can still glean valuable information from it. Let’s dive in and take a closer look at the numbers and what they can tell us for 2021 and beyond.
While the Mass Mutual Life Insurance ownership transition survey covered a range of important points, one of the most significant discoveries was that 80% of family-owned businesses were still being controlled by their founders. A large percentage of those founders were Baby Boomers who would have little choice but to retire in the not-too-distant future.
Choosing a Successor
The survey indicated that 55% of CEOs over the age of 61 had yet to choose a successor. This suggests a “retirement wave” will hit family-owned businesses, and this will lead to some interesting shifts and opportunities. And while the survey indicated that 13% of CEOs stated they would never retire, the reality is that ownership will eventually change hands. Merger and acquisition advisors can expect to see an unprecedented wave of interest in their services. Additionally, prospective buyers will also have a highly unique opportunity to buy established businesses.
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The survey also indicated that 30% of family-owned businesses would change leadership within five years. Of course, with that change of leadership, many possibilities open up, including the possibility of selling. However, while there will be a “retirement wave” amongst the Baby Boomers, not all businesses currently owned by Baby Boomers will be placed on the market.
According to the survey results, 90% of businesses were expected to remain family-owned and 85% of businesses expected to have their next CEO be a family member. Keep in mind that even if these numbers were to hold true, at least 10% of businesses would be up for sale.
It is likely that this number is far higher now than when the survey was conducted due to the aging nature of the Baby Boomer population and owners looking to sell because of pandemic-related issues. There will be no shortage of businesses for sale in 2021 and beyond.
Another important aspect of the survey to consider is the fact that family-owned businesses are not prepared to sell. According to the survey, 20% of family-owned businesses had not completed any form of estate planning and 55% of family owners did not have any formal company valuation for estate tax estimates. Combine these statistics with the fact that 60% of businesses did have a written strategic plan, and it becomes clear that family-owned businesses, especially those considering selling in the future, are most definitely in need of professional assistance. Many family-owned businesses are ill-prepared for the future and have a range of vulnerabilities. M&A advisors are uniquely positioned to provide those services.