April 23, 2012 | last updated June 4, 2012 12:05 pm
EXPERT CORNER

Tsunami of M&A deals is 'new normal' in CT

Bruce Del Conte

Connecticut should be prepared for the trend of business mergers and acquisitions to continue and perhaps even accelerate in 2012, especially for mid-sized privately held companies.

There are many contributing factors that are leading to the increase such as the need to acquire for growth, private capital seeking acquisitions for growth, and the relentless evolution of technology that is driving market consolidation. However, a leading driver will be the pent up tsunami of Baby Boomers who are waiting to retire and tired of competing in a tough world.

The first wave of Boomers is hitting retirement age this year and increasingly I hear them saying they do not want to keep working. Many are feeling burnout resulting from increased government regulations, competition (including global competition) and would like to have some time to enjoy their retirement. Unfortunately many have been in a holding pattern since the Great Recession hit, waiting for the economy to turn around and they are now reaching the end of their rope.

With their retirement assets still trying to regain lost value from when the stock market tanked, owners of closely held companies are increasingly looking at "the business" as their primary retirement asset.

Feeling trapped by the timing of fate, many business owners are left asking "what do I do?"

The answer comes from a cliché that may sound trite, but it fully applies in this case — if you fail to plan, you plan to fail.

In an attempted response to all the Baby-Boomer business owners that will be retiring, a new "cottage" industry has been created and is known as "exit planning or succession planning". However, exit planning or succession planning is really not a new concept. In fact, a succession plan is part of or should be part of every strategic business plan. It's really no more complex than asking oneself the question, "where am I taking my business?"

It has been my experience in nearly three decades of advising business owners and performing the valuations on their companies that most don't do this; they just deal with day-to-day business issues and busy themselves with putting out fires instead of focusing on their strategy or when they're going to retire. Then one day they wake up and realize "Oh no, my business is going off a cliff." In some cases, it's too far gone to turn around.

So, many business owners who are at or near retirement age are facing tough decisions. Some might believe they can make more money by staying in business, but if that's the case, they have to be willing to keep pushing the company forward or there will be diminishing returns on the value of the business. Keep in mind, it's a grind to come to work every day and keep a business moving, especially for a person near, at, or past retirement age. They need to take into account today's ever-changing business environment. For one thing, there's the challenge of keeping up with the technological advances that make it an imperative to constantly evolve to avoid disruption and obsolescence. As the life cycle of products tend to decrease, so does the life cycle of a business if it does not find ways to evolve and reinvent itself. All of this requires capital; both financial and human.

For some, the best thing to do — before it's too late — will be to start preparing their business for a sale rather than make the effort of bringing the business to the next level.

At minimum, business owners should start planning for a sale 18 months in advance, but three to five years would be best in terms of positioning the company.

There's a lot at stake for the first wave of Baby Boomers who are chafing to sell out and enter the next stage of their lives. The message to them is abundantly clear — be ready to take your enterprise to the next level, begin the processes for selling the business, or brace yourself for a retirement that may never arrive.

Bruce Del Conte is managing partner at Del Conte, Hyde, Annello & Schuch P.C. in Farmington. Reach him at (860) 676-9020

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