A Time of Transitions: Rehmann Advisers Help Guide Succession Planning

Luck is preparation meeting opportunity, or so the saying goes. When it comes to running a small or midsize business in mid-Michigan, a little bit of foresight can create a lot of good options in terms of succession planning.

Such business transitions like business mergers and acquisitions, also known as M&A, “have really taken off” in Greater Lansing as of late, said Bill Burke, the Lansing-based director of client services and business development for Rehmann, a financial services and advisory firm.

“The aging population — baby boomers exiting — and opportunistic sellers are the leading drivers,” Burke said. “There is some evidence that the pandemic has worn on business owners, not unlike the general population, to the point that they might simply be accelerating a transition that was planned for several years down the road and figuring, ‘Why not now?’”

The trend is hardly local though.

“The country’s demographics are playing a part in this trend. The baby boomers are getting to the age where transitions are common regardless of outside factors like a pandemic or fears about economic pullbacks,” Burke said. “Many of these business owners were also in business during the Great Recession/fiscal crisis, 2007-2009, and see the current high multiples and large amount of PE (private equity) monies out there as an opportunity to exit before another potential downturn.

“M&A activity seemed to slow for a bit for the first six to nine months at the onset of the pandemic but, since then, has really taken off again. These factors seem to be increasing given the current market conditions and the thought that interest rates are scheduled to increase in the upcoming year,” he continued. “Private equity money and activity is behind a lot of these transitions, and it’s hard to see that trend decreasing in the near term.”

While those opportunities can spring up quickly, being in a position to optimize a business transition can take time that isn’t always available.

“Most transactional services advisers will tell you that the preparation or ramp-up time typically takes three to five years for a company to be fully prepared for the event,” Burke said. “The takeaway would be to be proactive in your planning, partner with a strong business adviser with plenty of experience in transactional services, and do not wait until the last minute.”

That means business owners and managers should look at themselves now, before something of interest pops onto their radars.

“Companies that for whatever reason do not require the need for financial statement audits or robust internal financial reporting seem to be the ones that really need particular attention in transition preparation. The level of financial scrutiny that a PE firm will bring to the negotiating table will probably be something with which they are unfamiliar,” Burke said. “Professional service providers are extremely important right now due to private equity looking for predictive and steady cash flows.”

What kinds of enterprises are particularly hot right now?

“As far as the types of businesses being impacted, insurance companies continue to be an area of focus, particularly middle-market companies,” Burke said. “Another area in which we have seen some activity is in auto dealerships being sold to larger family groups and private equity.”

Winging such a transition isn’t advisable.

“For what could be the most important financial decision you’ll make, and one that most business owners will encounter only once, having an experienced advisory team can be invaluable in the sale, merger, partial sale or recapitalization of your business,” said Stacie Kwaiser, chief operating officer for Rehmann. “By partnering with an advisory team — a team that ensures a holistic approach to a business owner’s unique situation — all bases are covered.

“The decision to transition your business is an emotional one, and staying on top of things throughout the entire process may feel overwhelming at times. An advisory team approach ensures business owners have support and guidance every step of the way, from business valuation and tax strategizing to addressing financial goals and planning for what life looks like after the business transition takes place,” Kwaiser said.

In addition to getting your ducks in a row, there are a number of external variables of which business owners should be aware that could impact their transaction.

“Like all businesses nationwide, our region’s businesses will need to continue to attract, train and retain staff in the new flexible work environment,” Burke said. “Something unique to Lansing will be seeing what occurs downtown with the state of Michigan continuing to offer employees the option to work from home and what impact that has on the local commercial real estate market.

“But on the positive front, Lansing is becoming one of the nation’s fastest-growing med tech/life sciences hotbeds, with notable strength in medical isotopes, medical devices and biotechnology,” Burke said. “Lansing also has some great visionaries, developers and entrepreneurs who will ensure growth and economic prosperity for years to come, and Rehmann is excited to be a part of that future.”

The Financial Adviser: A Knowing Guide

When on a journey, it’s helpful to have a knowing guide. That’s the role a financial adviser can play for small- and medium-sized business owners who are mapping out their paths — especially regarding business transitions — to ensure they fully benefit from sales, mergers and acquisitions.

“As a financial/business adviser, we are planners by nature. We will create a plan with goals, and track and measure those goals with a desired outcome in mind while limiting risks,” said Kris Burak, financial adviser and office managing principal of wealth management for Rehmann.

“Specific to business transitions, it is recommended that you work with your trusted advisers — CPA, estate planning attorney, financial adviser — to be proactive; you want to plan in advance pretransition to maximize the value of your business and minimize the tax obligation while preparing for your life post-transaction,” Burak said. “Planning in advance of a deal typically allows you to negotiate from a position of strength versus starting planning after a deal is on the table.”