The modelling by PwC suggests the large number of private and family-owned businesses changing hands is a “once in a lifetime” shift of wealth and leadership as Baby Boomer business owners look to retire.
In its report Once in a lifetime: Creating the right growth chemistry for Australian private and family businesses, PwC suggests that business owners factor in this massive shift in ownership into their own succession plans.
“When it comes to transition, not all owners have the same goals. While some prefer an outright sale, others want to maximise their company’s growth potential before they exit or hand over the reins,” PwC’s private clients leader Sanjiv Jeraj wrote.
Private equity is increasingly being touted as an alternative means for SME owners to exit their business instead of a traditional sale to another owner-operator or handing the business down to children.
“In the current economic environment, there’s a healthy supply of capital looking for a good home. In fact, investors globally are sitting on $1.7 trillion of ‘dry powder’ – a term for money raised but not yet committed,” said the report.
“This supply of capital represents a unique opportunity for private and family business owners.”
According to PwC, those businesses in Australia that are backed by private equity achieve a compound annual growth rate of 28 per cent over five years.
Despite the expected surge of businesses looking for new ownership in the near future, studies have suggested less than half of current owners have a plan in place to manage their exit from their business.
Another business adviser, Nicholas Guest of HLB Mann Judd, recently warned that not having a plan in place can be a recipe for disaster, particularly considering that younger Australians are decreasingly willing or financially able to take over the family business.