Sign of the Times
A monthly market commentary
“Succession & Consolidation Issues That Happen Every Day”
Think back to when you started your company. Not unusual for many successful entrepreneurs to have started without a college education, or perhaps with a state university pedigree.
What this person does know is that they have a knack for business and they dont like working for someone else. The business may have been started by getting a second mortgage on the house, borrowing from the in-laws, maxing out the credit cards and even raiding the children's college fund.
He (if you are female, please substitute "she" :), works around the clock, six and seven days a week. His wife takes care of the house, but also helps out at work doing whatever needs doing. This is the 24/7 woman we have always heard about. I've never known a 24/7 man. Not sure I want to know one. Anyway, after surviving a number of near-death experiences, the business is going pretty well--he's not taking any big salary, but he can pay the bills and the business is expanding. Excess profits are ploughed back in to growth.
Despite the fact that he went to public schools, he sends his three children to private schools. He joins the country club but rarely uses it. However, his kids love it and are good golfers and tennis players.
Business clicks right along. The company becomes well known locally and he's also been able to expand to a few other cities within the region. The company is receiving recognition for its achievements with numerous local and regional awards.
He sends his kids off to elite colleges and loves telling anyone who will listen about his children's success. During summers, he offers his children opportunities to learn different parts of the business, but nah, they're off to Europe instead.
The kids finish college and grad school. After bumming around for a few years they convince their dad that they should get experience elsewhere at another company or another industry before they come back.
The kids move to New York City, Chicago, San Francisco or London to begin their careers where remarkably, a lot of their friends from school are living. Life's good.
Dad still works six days a week, but he finds he is actually starting to enjoy going on vacation and playing golf. His kids have been promising him for 10 years that "next year" they are going to move back to join the family business.
New technology is creeping into the industry and although Dad is less than comfortable with it, he begins to adopt it not exactly sure how it all works. His fear in not using it is that he will be left behind. XYZ, a company in the same business where he was friends with the CEO (both were the industry association president at different times) has just gone public with a very healthy multiple. Now with a public stock, they are buying up everybody.
Having seen XYZ's IPO, some of his long-time customers start asking questions--a few even start to do some business with XYZ on its e-commerce site (something his company doesn't even have yet). All sorts of issues start arising, like China, India, and outsourcing. Things were a lot simpler when all he had to do was make the customer happy and keep his costs low..
XYZ is getting more and more of his business--they are charging 20% less, which he thinks is insane. When he talks to his lost customers, they say that a combination of factors attracted them to XYZ--doing business with them is cheaper, faster, and better.
He looks at XYZ's public financial statements--and can't believe his eyes. Despite charging less, they have higher margins!
His health is starting to concern him. His doctor has told him he needs to slow down--at the time his business needs him to speed up! He calls his children to see if they are ready to come back--they each tell him "No", that it wouldn't be fair to their kids, but they do thank him for setting up his grandchildren's trust funds and paying for their private schools--it really helps. He tells his kids he understands as they tell him how much more difficult and expensive it is today than when he was growing up. Gas was probably only 25 cents a gallon then (hmmm, if they even HAD gas back then) verus $3.39 a gallon today.
Reluctantly, he hires a firm to represent him in the sale, merger or acquisition of his company. Eventually, he merges with XYZ.
XYZ's stock goes up as the acquisition is accretive. He leaves after 6 months as he disagrees with decisions that are being made at the top. Sealing his frustration was a phone call with the CEO, in which response to his complaints was, "Last time I checked, we bought your company."
Sound unique? Not a chance. It happens every day on Wall Street.