During the past 10 years, the average Fortune 500 CEO age has inched up to 58 from 56, according to Korn Ferry, an executive search and recruiting firm based in Los Angeles. They go on to say that “This reflects the overall ageing of the U.S. workforce as Baby Boomers continue working long past traditional retirement age. By 2022, 31% of those ages 65 to 74 will still be working, up from 20% in 2002, according to the Bureau of Labor Statistics” Coupled to that, the OECD (The Organisation for Economic Co-operation and Development) recently published employment rate figures demonstrating that in the UK alone, more than 67% of individuals over the age of 55-64 year olds are permanently employed, with many planning to continue working after retirement age.
Let’s face it – as a senior leader in your organisation, or as the organisation founder itself, choosing to leave the business you’ve spent years to build up and nurture is hardly an easy decision. Which gives all the more relevance to ensuring a solid and prepared exit strategy is in place – especially when you’ve invested in your business, and you’re either looking to recoup that investment, or simply ensure that the hard work you’ve put in to grow your organisation is left in the right hands, which will continue to build its success. So, whether it’s through M&A, or the sale of equity, or a management or employee Buy-Out, identifying the best strategy for you, is critical for both you, and the business you leave behind.
We look at a few exit strategy options and how they could affect you, and your organisation.
Mergers & Acquisitions:
Choosing to sell your company to another, or merge with another, very often feels like a quick Get Out plan. It’s anything but. According to a recent study conducted by Deloitte, increasingly, organisations are seeing their springboard towards capturing innovation opportunities and growth, through M&A and venture investments. Look at Ikea – in desperate need to innovate and join a drastically changing, digital world, their purchase of TaskRabbit (an on-demand platform that makes it possible for you to hire people to do a chore for you – whether it is to build furniture, or wait in line at the Apple store) has not online aligned their business services to cross over from the physical to the digital offering, but they have set themselves up beautifully within a new digital space, immediately giving them an active digital voice where previously they may have struggled to build one organically.
So, for many senior executives and business founders, making the decision to remain agile, and forward-thinking, often means considering what’s best for the future of their organisation – and for many, that means siding with another business that immediately gives access to where they need to be.
Initial Public Offering
Floating a business and listing it on a Stock Exchange used to be the chosen way for quick and immediate growth – and a great way for executives to decide whether they want to stay the course, or step aside as a new leadership team builds the new public business and takes it forward towards more success. But since the infamous internet boom in 2010, IPO has become, and continues to become, less of a way forward. In fact, the pressure is on, and is growing, for businesses who choose to follow the IPO path, as investors become more acutely focused on the quality of the business and growth opportunities than the background of the vendor. All the more reason why, if deciding to take your business public, you need the right support structure in place to ensure success – before even attempting this process. For senior executives who may have been through this process in the past, this may, for them, decide to be the final triumph of success for their business before taking the decision to step aside – moving away from the core day-to-day running of the business, and assuming a more strategic leadership role, supporting a new, dynamic management team to move your business forward. Remember that the IPO process is a long one – filled with hard challenges – a strategy which, for many senior executives, may not be best suited to them, or their businesses.
Management Buy Out
If you’ve built a business whose legacy you want to see continued long after you’re gone, you may want to consider turning to your employees. It may sound slightly scary, but hear us out for a second.
Your employees know your business. They’re in it, they live and breathe it. Chances are, if you’ve hired the right teams, they are as passionate about seeing it survive and succeed, as you were when you first set it up. They have existing knowledge about how things are run, but they also have intimate knowledge about undervalued things like understanding the company culture and corporate goals.
If legacy is what matters most to you, having your employees or your management team, buy your business from you is a good idea. And before you consider simply handing your business over to your family (see our next point), consider, for a second, the regard that your prospective successors hold for your business, and for the years of hard work you’ve put in to build it to where it is today.
A tricky one! We’ve seen it on many occasions – farmers, retailers, tradespeople and more, whose greatest wish is to see their sons and daughters pick up and continue with the dream that was established. And just as much as the desire is there to handover, the shock is even harder when realising that their dreams are not yours, their desires are not yours. And it’s no different in the business community. Whether you’ve built an enterprise with a turnover that would make even Rupert Murdoch blush, or whether you’re simply looking for your family to carry the flame of your family business that has been passed down from generation to generation to you – it’s no different. If family succession is part of your exit strategy, we assume that you’ve not taken the decision lightly. After all, if your family has been brought up with an intimate understanding and knowledge of your business and how it works, they may certainly be the best people to hand over to. In fact, a great example of this was Palo Alto Software. Founded by Tim Berry in 1988, shortly before the recession hit, his daughter Sabrina Parsons was made CEO, and her husband Noah the COO. The decision was strategic and allowed Tim to pursue other interests, while Sabrina and Noah continued to lead the company towards new product development and growth.
This strategy may be the easiest one to decide – but one that shouldn’t lack the same concern, and thorough assessment to ensure that whoever takes over your business is competent and committed to the future of your business. It’s something that cannot be forced. It either makes strategic sense, or it doesn’t. So don’t force it. There are other options.
If you are considering your exit strategy – but have not quite decided what that looks like, we’d love to hear from you. Our team has worked with senior executive leadership teams for many years – identifying and nurturing their own exit strategies as well as the growth strategies for their businesses – and whether you’re looking for another business that compliments what you do, or whether you’re looking to develop new leadership options, we’re the right people to speak to. So get in touch with us today.