30.03.20

Succession planning in a recession. Is private equity an option?

Could partnering with a growth investor help prevent a recession from standing in the way of your retirement plans?

Tom Simpson

With the full effects of COVID19 yet to come and economists predicting Australian unemployment to rise to anywhere from 10 to 25 percent, it is safe to say that we are entering a recession. For SME business owners, this comes with a shopping basket of issues ranging from stagnant (or decreasing) growth to the ability to retain staff (often including family members).

As my role at Pemba involves me talking to the founders of SMEs on a daily basis, it has become progressively clear over the space of a few weeks that the focus has shifted from executable growth strategies and realistic exit timelines to maintaining stability and “business as usual”.

Regardless of this shift in mentality, the median age of family business owners remains unchanged at 55-64 years old and when surveyed by KPMG in 2018, 30% planned on exiting in 2-4 years with a further 60% in 5+ years. For some of these business owners, that was supposed to be this year!!

With no crystal ball to determine when the business cycle will recover, these initial exit timelines once set with the hope of achieving optimal valuations following 2+ years of consistent growth are now extremely challenging. However, partnering with a growth investor such as Pemba could potentially provide a way to accelerate the growth process and allow founders and shareholders to achieve their exit and succession plan aspirations.

How we can help?

Growth: As sustainable profits are still the main driver for business valuations, at Pemba we work closely to assist with accelerating the businesses growth trajectory. This may be organically through new products and geographies or inorganic through capitalising on market opportunities to make strategic acquisitions.

People: Timelines change and so does the need to bring on additional human capital. If necessary, the team at Pemba are experienced in bringing on key management team members to assist with founders transitioning out of the business (either completely or from an operational to strategic role).

Disrupted Sale Options: With volatility in listed markets reducing the appetite for IPOs and trade buyers experiencing declining revenue and potentially less available growth capital, private equity may be best positioned to provide optimal market valuations. At Pemba, we work closely to assist you to take capital off the table now and then partner to ultimately benefit from a second pay day when we exit together. With a proven track record of exiting businesses, we are experienced at positioning your business for exit when the time is right.

What next?

Are you a business owner struggling with the idea of your existing succession plans being disrupted by the events of the past month? If so, please contact us and we will be happy to share how we can help assist with pivoting through these difficult times so you can focus on your succession plan.

Photo by Sincerely Media on Unsplash

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