Making a success of succession planning
Premier Support Services is a facilities management company founded 20 years ago by entrepreneur Paul Taylor. Originally based in Birmingham, over the last two decades it has grown to have six branches across the UK. Then five years ago, Taylor’s thoughts turned to succession planning.
In founder-owned companies, succession planning typically involves planning for the founder to step back from the day-to-day running of the business, and this can also be a way to facilitate an exit. In the case of Premier Support Services, Taylor brought in a number of directors from respected blue chip facilities management businesses from across the UK. They learned how the business works, and took on increasingly important roles in the operations and strategic direction of the company.
A few weeks ago, Investec completed a transaction in which the management team took a controlling stake in the company, we took a minority equity position, and Taylor retained a stake and moved to a part-time chairman position in which he will be focused on the acquisitive growth potential of the business.
But why was this succession planning so successful and why did we back the transaction?
First, when you’re planning for a potential exit, investing in management well in advance is essential. On the one hand, a founder will have difficulty driving the business forward indefinitely if there are not other directors who can take the reins of the company. On the other, a business becomes much less attractive from an exit perspective if it appears to be entirely dependent on the founder. When we looked at this transaction, the competence and the growth plans of the management were essential to our confidence in the business. Industry experience isn’t always essential, but broader business skills and an appetite for growth certainly are.
Taylor brought in new managers about five years ago, which was very forward thinking. But if you’re looking to sell a business, you normally want to see the management team installed for a couple of years at least.
Second, although it is not always essential for the founder to retain a stake, if he or she does, it can be helpful. It shows a long-term commitment to the business and can de-risk the transaction, in the sense that the finance partner can have confidence that relationships dependent on the founder will not disappear and no morale will be lost as a result of the founder going.
Third, the structure of the transaction is vital. The management team at Premier Support Services could have simply secured a vanilla senior debt facility from a high street bank. But this would not necessarily have enabled them to fund the working capital and ongoing growth aspirations the management team are anticipating.
We were able to provide a more flexible funding solution that involved us taking a minority equity stake in the business. This has several advantages, with one of the most important being that the business’s financing partner is truly aligned with the shareholders of the business in a single integrated solution. A debt-only provider’s main aspiration is for the debt to be repaid. We also want the debt to be repaid, but because we have an equity stake, we want the business to create equity value too, which matches the aspirations of the other shareholders thereby creating a true long-term partnership.
This article is provided for information purposes only and should not be construed as advice of any nature. The views and opinions expressed are subject to change without notice.