By Justin Vogt
The small business community is undergoing the greatest wealth transfer in history. baby boomers own more than 12 million businesses and are expected to sell or bequeath $10 trillion worth of assets in the coming two decades.
The HTM industry is not exempt from this trend. Industry conferences (in-person or now virtual), LinkedIn, and industry news regularly remind us of operators who are moving into retirement after a successful career. The issue that is not regularly discussed in these farewell speeches, posts, or articles is how the business is transitioning into new leadership or ownership.
The list of the biggest risks facing the HTM market already includes a shortage of biomedical engineers and cybersecurity threats but should also include the potential for a knowledge drain. After all, the baby boomers looking at retirement possess a wealth of industry knowledge and customer relationships that we cannot afford to lose. This is particularly true for small businesses that operate in the HTM space.
The solution to this issue is an industry-wide push to help HTM business owners implement best practices ahead of a business transition, as well as what options are available to them as retirement approaches. There are fantastic resources around the industry to help participants learn about preventative maintenance or selecting new equipment, so why not have great resources for business transitions? These resources could teach owners about best practices to memorialize their knowledge and relationships, in addition to transitioning a new leader and how to receive the full value of the company they have built.
There are several options for HTM business owners to consider when thinking about the future of their company without themselves at the helm. We will briefly touch upon the four primary options.
First, a business owner may elect to sell their business to a competitor, sometimes called a “strategic.” Having spent decades in the industry, you as the owner likely know many people that would be interested in acquiring your business. This can be a very appealing option as the strategic buyer knows the industry as well as anyone and has the resources to help the business succeed. On the flip side, the strategic will likely subsume the business, change the culture, and look to find “synergies” to improve margins.
The second option is to sell to private equity. Private equity has an ever-growing presence in the HTM market; you may have even been contacted by them as they look to make acquisitions. This type of buyer tends to use a significant amount of debt to close a transaction, prefers to roll up the industry through making several rapid acquisitions, and then sells the collection of businesses within five to seven years to a different buyer.
A third option is for owners to start an Employee Stock Ownership Plan (ESOP) through selling or granting ownership in the business to employees. This can allow the owner to transition out of the business at whatever pace they choose as well as reward employees for their dedication and hard work. More information regarding ESOPs can be found at https://esopassociation.org/
The fourth option is to find long-term operators and investors that share the owner’s philosophy toward management and want to partner with the business for many decades. These partners have committed capital and the ability to acquire businesses, but also the desire to take an active role in managing the business to ensure a smooth transition. These buyers tend to focus on high-quality businesses and prefer not to make significant changes to personnel or culture. In many respects, the industry needs long-term-minded managers as investments in attracting, training, and retaining high-quality personnel are vital, but do not necessarily pay off in the short term.
In conclusion, the HTM industry should ignore this potential knowledge drain at its own risk. As more HTM business owners consider retirement each day, a concerted effort to maintain the long-term viability of the businesses, expertise, and relationships is much needed.
Justin Vogt is CEO of Evermore Industries. Questions and comments can be directed to 24×7 Magazine chief editor Keri Forsythe-Stephens at [email protected].