Dramatic drop in succession to next generation and increase in private equity sales
Nearly half (49%) of Canadian family business owners have not chosen their next business leader, exposing a lack of succession planning, according to the Canadian results of PwC’s latest Global Family Business Survey.
Among those who have planned for the future, many are making non-traditional decisions about their business with many opting to sell or choosing not to pass the company along to family. The study found less than half (48%) of Canadian family business owners plan on passing their family business onto the next generation—a significant drop from 90% in 2007.
Within the next five years, the survey found 27% of owners anticipate a change in ownership of their business. Among those who predict a change of ownership, 33% plan to sell to a private equity investor, up from 14% in 2007, while 22% plan to sell to a management team.
“It’s possible that the global downturn led people to re-evaluate their plans. People are thinking harder about whether family members have the talent to take over the business,” says Tahir Ayub, Canadian leader of PwC’s Private Company Services practice. “Another factor is that succession is happening much later. The natural successor may be in their fifties when the owner is ready to transition out of the business.”
Interest falters by third generation
Half of the study’s respondents said their companies were owned by the first generation; 34% by the second generation; and only 16% by the third or more generations.
“We’ve found that by the second and third generations, either the company doesn’t survive or family members are less interested in running the family business,” says Sharon Duguid, director, Centre for Family Business and Entrepreneurs, PwC. “To set themselves up for success, owners should be planning well in advance to ease tension and create the right conditions for a successful transition down the road.”
Tension key source of business breakdown
About one-third of respondents said they experienced some to a lot of tension over: family members not consulting the wider family on key business issues (36%); decisions over who can work in the business (31%); and the performance of family members who are actively involved in the business (39%). Despite this prevalence of tension, only 27% of respondents said they had conflict resolution procedures in place.
“Tension can be a good thing when it provokes necessary conversations, but when those discussions never happen, it can lead to the collapse of family businesses,” says Duguid. “People tend to wait until they have a conflict until they start thinking about conflict resolution strategies and then wish they had a formal system already in place.”
To ease tension before it hits, the report suggests establishing a family council, which is a family governance structure that proactively facilitates discussions and resolutions on key issues, including conflict management and succession planning. Owners can also consider setting up an external advisory board made up of non-relatives to obtain some different ‘non-family’ perspectives, especially about prospective successors.
The PwC Global Family Business Survey 2010-2011 covers small and mid-sized family companies in 35 countries. In Canada, 100 family business leaders were interviewed from July to August, 2010. For the full report, go to www.pwc.com/ca/familybusiness.
Additional Links:
A healthy family business – Effective governance and strong communication keys to success
Planning a Successful Transition – The Hitchman family of the Naylor Group Inc. share the steps they’ve taken to ensure a successful transition.
Exit Focus Series – Making the decision to sell and Finding the right buyer
A Private Equity Perspective – Anthony Sigel of Kilmer Capital Partners Limited shares his perspective on what private equity investors look for when they are considering making an investment in a company.
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For further information:
Jessica Draker, PwC
Tel: 416 869 8723
email: [email protected]
David Rowney, PwC
Tel: 416 365 8858
email: [email protected]
