Beyond Succession Planning: Reinvigorating American Legacy Businesses for Higher Returns

As an unprecedented number of American legacy business owners approach retirement age, a massive transition of small and mid-sized private companies will occur. While proper succession planning is crucial, investors also have lucrative opportunities to acquire and reinvigorate these businesses to drive transformational growth and returns.

The Small Business Shifting of the Guard

The aging demographics have set the stage for a generational handover brewing in the small business landscape:

• According to estimates, around 480,000 business owners will want to retire each year over the next decade.

• However, less than 20% of those businesses currently have a robust succession plan in place.

• This mismatch will flood the market with an oversupply of businesses for sale in coming years.

For private equity, family offices, and other investors, this supply/demand imbalance creates opportunities to acquire high-quality, profitable businesses at discounted valuations.

Unlocking the Next Level of Growth

While changing ownership solves the succession problem, sophisticated investors recognize greater upside potential lies in revitalizing and scaling these American legacy companies:

Modernizing Operations

• Streamlining outdated processes and management structures

• Integrating new technologies to improve productivity and innovation

Expanding Market Reach

• Rebooting stale branding, marketing, and customer acquisition strategies

• Capitalizing on e-commerce and digital channels for broader distribution

Injecting New Talent

• Bringing in modern leadership and skills to complement founding teams

• Incentive structures aligned with an ownership mindset

Hands-On Ownership Approach

Patient capital providers like multi-strategy funds and private equity are well-suited to capture this value creation by taking a hands-on, operating approach post-acquisition:

• Building out new sales, marketing, and technology capabilities

• Implementing better financial/operational controls and reporting

• Capacity for longer holding periods to nurture transformational initiatives

While small, succession-driven deals may often get overlooked by large private equity funds, this fragmented landscape is ripe for investors able to focus resources on revamping foundational businesses with diamond-in-the-rough potential.

Wrap Up

As the great wave of business owners begins exiting over the coming years, the investing opportunities may extend well beyond simple ownership transitions. By combining succession solutions with growth-oriented initiatives, a new era of small business revitalization could be on the horizon.