[Mak Malik]

One of the more interesting dynamics coming forward with the pending retirement wave of the Baby Boomer generation is the volume of Founder CEO Entrepreneurs who are seeking retirement exits of their businesses. Nearly 63% of Canadian Small Business Owners expect to exit their businesses in the next decade with 78% of that group identifying retirement as the primary motivation for exiting. Complicating this dynamic is that only 6% have a formalized succession plan and 47% anticipate significant challenges in finding a suitable buyer.

While strategic buyers remain an option, the PE market has been very active in this transition process but are encountering the challenge of leadership retention as the CEOs in founder-led businesses usually are the founder themselves. The average tenure of the acquired business CEO is between 1-3 years but those figures are misleading. 63% remain through the beginning of the second year, but the other 37% exit within the first 6 months. Additionally, with retirement being the primary factor the likelihood of outbound CEOs lasting beyond 12 months is less than 50%.

This presents a fundamental challenge. Nearly 2 trillion in business assets are available for acquisition, many PE firms are vying for this pool of assets driving up demand, Business owners don’t have succession plans to continue the strength of the business value being acquired and may not have the expertise to do so, but acquisition value continues to trend up.

The question is how to balance the line between acquiring a business that has clear succession risk in a competitive marketplace and also managing the succession planning process while the outbound founder/CEO remains in place?

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