Thomas Davenport &
It’s a seller’s market today. Many companies are looking to grow market share and expand geographic reach through acquisition. And private equity investors have
money to spend and are hunting for good investment
opportunities. In this favorable mergers-and-acquisitions
environment for potential sellers, distribution company
owners must prioritize succession planning. Even if an
owner has no plans to step away from his business for
many years, going through the succession planning
process will allow him to define his long-term goals and
prepare to properly assess any inbound offers.
Of course, as competitive pressures mount and
distributors work hard to recruit the talented workers
they need to keep up with demand, it can be hard to
devote time to succession planning. According to the 2018
Manufacturing and Distribution Report from professional
services firm Sikich, only a quarter of respondents said
they have a written plan to exit the business. While this is
up from 18 percent in Sikich’s 2017 report, it’s still too low
and reveals a persistent vulnerability in the industry.
Unexpected life events—from unsolicited buyout offers
to personal health challenges—can crop up at any time,
forcing organizational change when an owner least
expects it. Without a plan in place for the next era of the
business, the company may end up making a bad deal
in the M&A market or face infighting from potential
successors that impedes business operations.
The good news is there’s a well-defined blueprint to
succession planning. Business owners should do their best
to follow this blueprint to ensure as best they can that
change happens on their terms.
Spur Growth Now by
Planning for the Future
Succession planning can not only help distributors
ensure long-term stability, but also address some of their
current impediments to growth. A key part of preparing
for succession is working to increase the value of the
business to make it more attractive to buyers or profitable
for the next generation of owners.
Today, many buyers are interested in value-added
distribution. Distributors that only buy, hold, and ship
product do not command the premium valuations
from potential acquirers or investors that those with a
secondary, value-added process do. If a distributor doesn’t
offer a robust set of capabilities today, a succession
planning effort can help them identify this need and
begin to develop additional competencies and services.
Similarly, some distributors struggle with customer
concentration. As a result, a distributor may want to
outline a strategy for market expansion—whether
through organic growth or by acquiring other
companies—that can extend the organization’s footprint
and service offerings and diversify its customer base.
The owners who begin succession planning early will
give themselves more time to make needed changes to
strategy and operations and enhance the value of their
businesses, which can pay dividends once they are ready
to enter the M&A market.
Let Your Goals Drive Your Approach
As a distribution company owner considers the
future of his business, he needs to start by outlining his
personal goals. How long does he want to work before
Write a Will for Your Business
to Ensure Long-Term Stability