As the baby-boom generation reaches retirement age, many business owners find themselves facing the prospect of transitioning their companies into new hands. It can be a complicated proposition, as a variety of needs, objectives and stakeholders factor into the balance of making a decision for the future of the business and its shareholders. There is no one-size-fits-all approach that makes sense for every company, and the spectrum of potential solutions is wide and complex. But regardless of their business size, sector or circumstances, there is one step owners can take to help achieve a successful transition: rely on relationships with experienced advisors who are aligned with their unique goals. 

A Consultative Approach to Transitioning Business Ownership

For many companies, whether they are public, private, or family-owned, the key to determining the ideal path forward hinges on a careful evaluation of the goals and best interests of all parties involved. This, according to Melissa McCarthy, head of PNC’s Corporate Advisory Center, is where having a strong relationship with a trusted financial advisor plays a pivotal role.

“We are seeing a lot of activity now in generational planning, as more business owners are reaching retirement age. As they make decisions about the future, it’s important to understand their goals around personal liquidity, investment needs of the business, and current and future leadership planning,” said McCarthy. “PNC aims to approach each situation in a way that ensures we understand every single stakeholder’s needs, desires, and goals. We want to showcase the various paths the ownership transition can take, helping the stakeholders understand the advantages or disadvantages of each alternative and how well it does or does not align with their goals before they make a decision.”

PNC works with clients to provide a comprehensive view that often includes analytics and directional modeling to help stakeholders understand the scale and timing of capital required to support shareholder goals and how this will interplay with capital needs and goals for the business. The team works closely with outside advisors to incorporate tax and legal considerations around each alternative at the corporate and individual level. 

Considerations for Merger and Acquisition Opportunities

This level of careful evaluation is equally important for businesses weighing merger and acquisition (M&A) opportunities. “Sellers should be very clear about their priorities as they think about M&A, since different strategies will deliver distinct rewards,” said Bill Watkins, a managing director at Harris Williams, a global investment bank specializing in M&A advisory services and subsidiary of PNC. He added that sellers should also be realistic in their expectations, given the current economic climate. “We're coming out of an historically unique period for M&A, in which values reached new heights, and we’re now returning to a more ‘normal’ market in line with longer-term trends.”

In Watkins’ view, however, M&A may present attractive opportunities for well-positioned businesses, regardless of macroeconomic circumstances. “Even in challenging times, buyers have capital to deploy, and there may be fewer great businesses looking for buyers. All of this can add up to a scarcity premium for those businesses ready to go to market,” said Watkins. “Conversely, companies in stronger financial positions relative to their peers may be able to compete more effectively for the best opportunities. So, overall, uncertainty can be a boon for solid companies eager to engage as buyers or sellers.”

As with any other business ownership transition scenario, Watkins said the key to a successful result lies in relying on consultative expertise. “When it comes to exiting a business, there are a host of factors for owners to consider. Our goal is always to provide thoughtful, tailored advisory to help them achieve the best possible outcome.”

Investing in Employees and the Future with ESOP  

For some owners, selling a company outright may not align with the objectives they have for the legacy of their business and its stakeholders – including their employees. Employee Stock Ownership Plans (ESOP) are growing in popularity as an alternative for owners looking to make an investment in the future for their employees and their business.

“ESOPs provide broad-based employee ownership, not just ownership for a few key employees. Everyone has a role, and everyone’s contribution matters,” said Julie Williams, managing director and national lead of ESOP Solutions for PNC Bank. “ESOP-owned companies make a dedicated effort to reinforce the meaning and impact that ownership has for employees, and the natural result is that these companies often have strong cultures and strong performance.”

Business owners who value the benefits ESOPs can provide, from tax advantages to culture, have been drawn to this exit alternative for decades. More recently, ESOPs have begun attracting the attention of a much broader investor community, including private equity and social impact investors. “Investors have come to understand that employee ownership creates positive economic and social outcomes, and ESOPs are a great vehicle to accomplish that,” said Williams.

The appeal of an ESOP also lies in another increasingly important benefit. “One of the top priorities we are hearing about from clients right now centers around employee engagement,” said Williams. “In the current competitive environment, businesses that can attract and retain engaged and motivated talent have a real competitive advantage. ESOP-owned companies are known for fostering strong employee engagement because the shared ownership aligns the success of the individual with that of the company. Beyond a more motivated and stable workforce, the benefits of highly engaged employees can include improved productivity and profitability, which can lead to a stronger competitive position and increased shareholder value.”

Ready to Help

PNC has specialists that can work with you to develop strategies for success in transitioning ownership of your business. For more information, reach out to your PNC Relationship Manager, or click here to learn more.