Majority of Fast-Growth CEOs Likely To Move On
Nearly two-thirds (65%) of surveyed CEOs plan to move on within a decade or less: 42 percent within five years, and 23 percent in five to ten years. And their exit plans? Most (51 percent) anticipate a sale to another company. Other plans include: sale or transition to next generation family members (18 percent), a management buyout (14 percent), and an ESOP (Employee Stock Ownership Plan) (seven percent). A smaller number cited an IPO or other options.
But, despite these intentions:
- Only 22 percent have done a great deal of succession planning, and another 26 percent have done some. But 24 percent have done little, and 19 percent, virtually none. Nine percent did not report.
- Only 39 percent of CEOs have a likely successor in mind, but less than two-thirds of them say that person is ready to take control today. Nearly half (45 percent) have identified no successor, and 16 percent did not report. Most exit plans involving family members (79 percent) do designate a primary successor, as do 51 percent of plans anticipating a management buyout, and 48 percent of those planning an ESOP. However, only 29 percent of those expecting to sell to another company have identified a primary successor.
- 44 percent have a contingency transition plan for an unforeseen event which would render them incapable of leading their company. But nearly as many, 42 percent, do not. Fourteen percent did not report.
While only 22 percent of Trendsetter CEOs have done "a great deal" of succession planning, they are part of a larger group that has started on the broader aspects of planning for the eventual transition of their business. Altogether:
- 58 percent have an estate plan that addresses the disposition of their business—and most (85 percent) have updated it over the past five years.
- 45 percent have a buy/sell agreement that covers lifetime transfers of the ownership of their businesses. This includes two-thirds of the 14 percent that expects an eventual management buyout.
But among those planning to sell their business—internally to management or family members, or to another company—far fewer have explored the following opportunities:
- Only 36 percent have planned how to increase after-tax proceeds;
- Only 35 percent have developed an investment strategy to protect and manage their monetized wealth; and
- Only 37 percent are planning on using funds from the sale to meet philanthropic commitments or objectives.
Different Business Profiles, Different Exit Plans
Companies with exit plans involving sale or transition to next generation family members (18 percent) are notably larger businesses, whose CEOs have less concern about weak demand as a barrier to growth over the next 12 months. Those considering sale to another company expect the strongest revenue growth over the next 12 months, but on balance their gross margins over the past year have been tighter, and a majority are concerned about demand.
|Sale to Another|
|Sale to Family||Mgmt|
|Revenue Growth Next 12 Months||22.5%||18.5%||19.9%|
|Gross Margin Over Past Year:|
|-% of Revenue Next 12 Months||18.3||15.2%||13.2%|
|Potential Barriers to Company|
Growth Over Next 12 Months
|-Lack of Demand||57%||47%||59|
|-Enterprise Revenue Size [Millions||$23.5M||$44.1M||$27.1M|
|-Enterprise Employee Size||131||333||161|
"These profiles should be viewed as snapshots in time," said Calzaretta. "With a window of up to ten years for transition, significant changes could occur before final disposition."
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PricewaterhouseCoopers' "Trendsetter Barometer" is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.