Most chief executives of America's fastest-growing private companies say that they're likely to step down within the next 10 years, but almost half have put little to no thought into succession planning, according to a survey by PricewaterhouseCoopers.
Nearly two-thirds (65 percent) of 364 CEOs surveyed plan to move on within a decade or less -- 42 percent within five years, and 23 percent in five to 10 years -- with most (51 percent) anticipating a sale to another company, according to a PwC poll of CEOs at privately held product and service companies with between $5 million to $150 million in revenue/sales. Other exit plans include sale or transition to next-generation family members (18 percent), a management buyout (14 percent), and an employee stock ownership plan (7 percent), while a smaller number cited an initial public offering or other options, according to the PwC Trendsetter Barometer.
However, PwC reported that only 22 percent have done a great deal of succession planning, another 26 percent have done some, while 24 percent have done little, and 19 percent, virtually none. Nine percent didn't report.
Just 39 percent of CEOs have a likely successor in mind, and less than two-thirds of them say that that person is ready to take control today. Nearly half (45 percent) have identified no successor, and 16 percent didn't report.
Most exit plans involving family members designate a primary successor (79 percent), as do 51 percent of plans anticipating a management buyout, and 48 percent of those planning an ESOP, while only 29 percent of those expecting to sell to another company have identified a primary successor.
According to the survey, more CEOs have prepared for disability than departure. Forty-four percent have a contingency transition plan for an unforeseen event that would render them incapable of leading their company, while nearly as many -- 42 percent, do not, and 14 percent didn't 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. Nearly half (45 percent) have a buy/sell agreement that covers lifetime transfers of the ownership of their businesses -- including two-thirds of the 14 percent that expect an eventual management buyout.
Among those planning to sell their business internally to management or family members, or to another company, 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.
PwC noted that companies with exit plans involving a 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.
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