More than half of the owners surveyed don’t have a ... - FMIlp.fminet.com/rs/.../OTMSSurveyReport_2013_FINAL.pdf · “FMI’s 2013 Ownership Transfer and Management Succession

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OWNERSHIP TRANSFER AND MANAGEMENT SUCCESSION2013 SURVEY

More than half of the owners surveyed don’t have a formal plan to transition themselves

out of managing the business

2 OWNERSHIP TRANSFER AND MANAGEMENT SUCCESSION | 2013 SURVEY

Introduction

As the famous generation of baby boomers reaches retirement age, much has been made about the tremendous wealth

transfer of the largest and wealthiest generation the country has ever seen, with estimates ranging from $20 trillion

to $41 trillion set to change hands in the next 50 years. Focusing on the construction industry alone and projecting

estimates from our current survey of contractors, a little more than 50 percent of firms will change ownership in the

next 10 to 12 years.

The question is when and how. Only 47 percent of respondents to “FMI’s 2013 Ownership Transfer and Management

Succession Survey” believe they have capable, strong managers who could run the company in their absence. Further-

more, only 44 percent said they have a formal plan in place to transition themselves out of managing the business, and

just 64 percent have a formal plan in place to ensure continuity of operations in the event of their death.

Meanwhile, owners continue to get older. The percentage of respondents over the age of 60 in the 2013 survey was

32 percent, versus 20 percent in FMI’s survey conducted five years ago. The economic downturn further complicates

this trend. The key indicator of ownership transfer funding, pretax return on equity, declined for two-thirds of the

businesses surveyed. Owners are not only getting older, but also now need to work further into their retirement years

to fund the transfer of their businesses.

THEOVERALL RESULTS

I’m not ready to retire, but I’m tired and frustrated with the economy and industry.

“

“

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Nonetheless, it does appear that since we last conducted this survey in 2007, more owners are making plans for the

transfer of ownership of their firms, and most of those nearing retirement age that haven’t begun to plan are aware of

the need to get the process under way. The immediacy of the problem is reinforced by several comments received by

owners:

� “It takes a long time.”

� “I should have started earlier and done more training in the areas between project management and the

‘executive suite.’”

� “Two third-generation members are still in college, and their competence/ability to run the business has yet

to be determined. Several nonfamily managers are interested in taking over, which needs to be transitioned in

the very near future.”

� “We have had many discussions on the subject and have some of the pieces in place to structure a formal

succession plan. We need to take the final step to decide on a specific course of action and implement it.”

� “I am 60 years old and would like to move out slowly; I have a young son, 22, who has potential. I’m not

ready to retire, but I’m tired and frustrated with the economy and industry. There are several employees who

have a lot of time who I would like to see benefit from their time here, and they should start thinking about

their replacements. It is difficult to keep young, smart employees unless they are part of something.”

� “We are in the five- to ten-year process of transferring ownership to selected family members and possibly a

key manager or two.”

Our purpose in this report is not just to measure the degree to which ownership transfer is emerging as one of the

more critical issues for the industry going forward, but also to determine and report how owners are achieving suc-

cess in their transition planning. The sampling of comments above reinforces the findings of the survey: Successful

ownership transfer planning requires more time than expected, the issues and decisions can be more complex than

most owners think, and the process can be daunting even when the plan is under way.

Methodology We sent a questionnaire to 6,700 randomly selected

contractors with minimum annual revenues of about $15 million. The response rate was 4.1 percent, which is good for a survey of this nature and speaks to the relative

importance of this topic in the construction industry.


Demographics When we conducted this survey in 2007, the average age of respondents was 55. In this 2013 survey, the average

age of respondents has shifted to 56.3. The samples for both surveys are comparable, since only a small number of

respondents participated in both surveys. Nonetheless, we can see a shift in the age of owners with 32 percent now

older than 60. All respondents were owners of the firm, including CEOs, presidents and board chairmen. Fifty-seven

percent of the owners responding to our survey have owned stock in their firms for more than 20 years. The data in

our survey represents a good balance between general contractors (40%) and specialty/trade contractors (37%) with

a significant representation of heavy/highway/civil contractors (17%). Forty-four percent of all respondents’ firms had

annual revenues ranging from $20 million to $100 million.

Sixty-nine percent of the companies reporting were S-Corps, 21 percent were C-Corps, and 10 percent were LLCs.

Fifty-four percent were nonunion, 35 percent were union, and 11 percent were both union and nonunion companies.

CONTRACTOR OWNERSHIP: DISTRIBUTION BY AGE GROUP

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HOW LONG HAVE YOU OWNED STOCK IN YOUR COMPANY?

57% HAVE OWNED STOCKFOR OVER 20 YEARS

of OWNERS

TYPES OF CONTRACTORS

40% 37%

44% COMPANY SIZE IN ANNUAL REVENUE

OF ANNUAL REVENUESRANGING FROM $20M TO $100M

Of those surveyed:

GENERAL CONTRACTOR

SPECIALTY/TRADE


RESPONDENT COMPANIES BY INCORPORATION TYPE

UNION/NONUNION

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Key Findings When FMI last conducted a similar survey in 2007, the construction market was booming. Volume put in place

reached its highest levels in history. Few anticipated the severity of the recession to come.

The recession affected not just construction companies’ bottom-line profitability; it also had a major effect on owners’

retirement plans. Many business owners now want to work longer, benefit from the profitability of their existing busi-

ness versus alternative investments, and rebuild their business in the wake of the economic decline.

“FMI’s 2013 Ownership Transfer and Management Succession Survey” results reflect these themes. Moreover, this

year’s survey provides several key findings:

1) Baby boomers own more than 84 percent of the firms surveyed. And they’re working longer. Fifty-two

percent of owners responding to the survey are age 47 to 60. Thirty-two percent of respondents to our survey

were older than 60, up from 20 percent five years ago.

2) Most owners plan to transition internally, but it is taking longer. More than 78 percent of respondents plan

to sell or gift shares to their employees or family. However, 66 percent of respondents indicated that their company’s

return on equity has declined since 2008. More than 33 percent saw declines greater than 20 percent. With lower

levels of profitability, transitioning the business internally takes more time.

3) Talent is critical. Fifty-two percent of owners indicated they do not have a team of managers that could easily

replace them in their absence. Fifty-six percent of owners do not have a formal plan to transition themselves

out of managing the business.

4) Owners are increasing their reliance on third-party sales – and many won’t find a buyer. Seventeen percent

of respondents are relying on third-party sales as part of their exit strategy. This is up a full eight percentage

points from our 2007 study and 11 percentage points from our 2003 study. When combined with the afore-

mentioned lack of talent at the management level – a key factor for many buyers – many of these companies

will find that a third-party sale will be problematic.

Each of these dynamics will play a role in construction markets over the course of the next two decades as the baby

boomers retire. Owners with more robust transition plans that reward up-and-coming employees are likely to benefit

at the expense of those unwilling to embrace the next generation of owners. We will explore the details of both sets of

owners’ plans in the next two sections.


Ownership Transfer PlansA majority of respondents to our survey have given ample thought to the future ownership of their company. Only 25

percent of respondents were uncertain of their ownership transfer plans.

For those owners with more definitive plans, 37 percent expect to sell to employees, and 17 percent expect to sell to

both employees and family members, while 24 percent plan to sell or gift shares to family members. As noted in the

introduction, 62 percent of owners consider their firms to be family businesses. We will look more closely at some

of the particulars of being multigenerational family businesses below, but it is striking that this percentage is virtually

unchanged from our prior surveys.

For those that expect to sell to a third-party, they are likely taking a substantial risk in achieving their transition ob-

jectives. In FMI’s experience, very few of the 17 percent expecting to sell to a third-party will find buyers ready and

willing to purchase the company at an attractive valuation when the current owner is ready to sell. If that is the case,

does the potential seller have a backup plan? Will those owners be forced to liquidate because of an inadequate man-

agement team?

Only 64 percent of respondents said they have a formal plan in place to assure continuity of operations in the case

of their death. Forty-four percent said, in the event of death, the owners’ shares pass to their heirs through their es-

tates. Thirty-one percent said shares are redeemed by the company, and 20 percent said shares were purchased by the

partners in the firm. Of the 44 percent that have the shares passing to their estate, almost half have no formal plan to

ensure continuity of operations.

These statistics demonstrate the large disparity in OTMS planning across the industry. In FMI’s experience, many firms

have robust, well-thought-out transition plans that account for nearly every contingency that can occur. Others have

almost none, and in the event of the owners death, many of these companies may be forced to liquidate as key manag-

ers depart or heirs prefer cash over ownership in a closely-held construction company.

MY OWNERSHIP TRANSFER PLANS ARE ...

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HAVE A FORMAL PLAN IN PLACE TO ENSURE CONTINUITY OF OPERATIONS IN THE EVENT OF THEIR DEATH

64% of OWNERS

36% DON’T

44%

31%

Passes to my heirsthrough my estate

Is redeemed bythe company.

Is purchased directlyby my partner(s).

Other stock plans.

20%

5%

IN THE EVENT OF MY DEATH, MY STOCK ... 44% OF OWNERS HAVE A FORMAL PLANIN PLACE TO TRANSITIONTHEMSELVES OUT OF

THE BUSINESS, WHILEMANAGING56% DON’T

I have a team of strong managers who

could easily manage thebusiness in my absence.

I have managementthat needs further

development.

I have no capablemanagement and will

need to hire someone fromoutside my organization.

47% 47%

5%

IF I WERE TO LEAVE THECOMPANYTOMORROW ...


Baby Boomer OwnershipWhen breaking out the results of our survey by broad age groups, we find that those younger than age 47— the group

we are calling the Gen Xers — have many of the same concerns as the baby boomers (age 47 to 60) and the baby-

boomer-plus (BB+) group (those older than 60). The major differences are the sense of timing and immediacy of the

problem of ownership transfer. Nonetheless, we see those younger than 47 putting formal plans in place, and there are

a significant number of those older than 47 who have not begun to plan for the transfer of management and owner-

ship of the firm. Our findings are consistent with research by others, as one recent survey1 of baby boomers found:

� 52% are not confident they’ll have the financial resources to retire comfortably

� 48% are delaying retirement

� 64% will work following their retirement

Baby boomers age 47 to 60 represent 52 percent of those owners responding to the survey, and those older than 60,

which include the first wave of boomers, represent 32 percent. Although, the BB+ group is generally better-prepared

to transfer ownership, more than half of the baby boomers have management teams that need further development.

Thirty-nine percent of baby boomers and 60 percent of the BB+ generation have formal plans for transitioning their

management responsibilities. Forty percent of the baby boomers still do not have a formal plan in place to ensure

continuity of operations in the event of their death, and 29 percent of the BB+ generation are also lacking formal plans.

Although there are still too many of the BB and BB+ groups that do not have formal transition plans in place, most are

moving in the right direction. It is interesting to note that a much greater percentage (33%) of the BB+ group plan to

sell/gift their shares to family members compared with 12 percent of the BB group. On the other hand, more of the BB

group plans to sell to employees (36%) than does the BB+ group (28%). One possible explanation of these findings

might be that 66 percent of the BB+ group consider their business to be a family business compared with 58 percent

of the BB group.

The recession has caused 14 percent of the baby boomers to put their plans on hold, while 20 percent of the BB+ group

has put its plans on hold. However, 29 percent of the BB group and 50 percent of the BB+ group are proceeding with

their plans despite the recession.

1 (October 2011 Associated Press and LifeGoesStrong.com surveys)

I have a team of strong managers whocould easily manage thebusiness in my absence.

I have managementthat needs furtherdevelopment.

I have no capablemanagement and willneed to hire someone fromoutside my organization.

40%

41%

57%

57%

52%39%

3%7%

4%

IF I WERE TO LEAVE THE COMPANYTOMORROW ...

NO

YES

83%

61%

40%

17%

39%60%

I HAVE A FORMAL PLAN IN PLACETO TRANSITION MYSELF OUT OFMANAGING THE BUSINESS ...

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12 OWNERSHIP TRANSFER AND MANAGEMENT SUCCESSION | 2013 SURVEY GenX BB BB+

I HAVE A FORMAL PLAN IN PLACETO ENSURE CONTINUITY OF OPERATIONS IN THE EVENT OF MY DEATH ...

NOYES

44%

29%40%

56% 60%71%

Uncertain at this point

Sell to employees

Sell/gift to family members

Sell to bothfamily members/employees

Sell to a third party

Liquidate

37%29%

14%

26%36%

28%

17%12%

33%

14%14%15%

11%18%

11%

4%5%

0%

MY OWNERSHIP TRANSFER PLANS ARE ...

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A note at an agreed-upon value.

Gradually selling my existingstock over a period of time.

Selling to an ESOP.

Through a new entity,such as an Oldco/Newco.

Other

25%

29%14%

58%40%

47%

0%4%4%

0%14%

9%

17%

13%26%

I AM SELLING MY STAKE IN THE COMPANY BY ...

HOW HAS THE RECESSION AFFECTED THE TIMING OF YOUR TRANSITION PLANS?

My plans are on hold.

10%14%

20%

10%

29%

50%

70%

49%

22%

10% 8% 7%

I am proceeding withmy transition despitethe recession and itsimpact on my firm.

I have yet to begin atransition regardless

of the economy.

What recession?


Sell to Employees, But Which Employees?Only 56 percent of owners said they currently have formal plans to transition themselves out of managing the busi-

ness. One reason for this is that only 47 percent feels it has strong, capable managers ready to take over if they were

to leave the company tomorrow. Our years of experience working with owners on transition plans bear this out. The

decisions on who should own shares in the company and be the next top managers are among the most difficult an

owner can make. These decisions are not made easier when owners are reluctant to turn over the reins or put off the

inevitable and think that the process will not take long once they decide to sell and retire. To the contrary, developing

and mentoring the next generation of leadership is a difficult and time-consuming endeavor. To repeat the comments

of just one owner answering the survey: “I should have started earlier and done more training in the areas between

project management and the ‘executive suite.’”

As we would expect, the majority of owners believe that executives/vice presidents (78%) should be the owner of the

business. However, there were also a significant number that thought ownership of the company should move deeply

into their organizations, including project managers, estimators and superintendents. Continuing a trend that we have

seen since our last survey more than five years ago, only 11 percent of current owners think only one person should

own all the stock. The majority (62%) thinks one person should have control, but there should be multiple owners.

This practice is consistent with the severely constrained market for key executives and the use of equity to attract and

retain critical top-level management.

I should have started earlier and done more training in the areas between project

management and the ‘executive suite.’

“

“

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I BELIEVE THE FOLLOWINGEMPLOYEES SHOULD BE OWNERS OF THE BUSINESS:

Executive Vice Presidents

Division Managers

Controller/CFO

Project Managers

Estimators

Superintendents

Other potential owners

78%

48%

47%

32%

21%

18%

8%

WHICH REPRESENTS YOUR OPINION OF WHO SHOULD HAVE A CONTROLLING INTERESTIN THE STOCK OF YOUR BUSINESS?

11%

One person shouldown all of the stock.

There should bemultiple owners

and no one shouldnecessarily have

control.

One person shouldhave control, butthere should bemultiple owners.

27%

62%


Ownership Transfer MethodsGenerally, there are only three ways to transfer ownership of a company. The first is liquidation, in which the opera-

tions of the company are wound down. Typically, when a contractor liquidates, he rarely receives the value intended.

This is because jobs must be finalized at higher cost (as employees know the firm is shutting down), fees must be paid

for the sale of property and equipment, and customers are usually slower to pay when they know the firm will not

exist in the future.

The second method of ownership transfer is gifting, usually to family members. This alternative works well if family

members are actively involved in the management of the business and the gift is structured to avoid tax obligations

that require a sale or partial sale of the company. Gifting to noninvolved relatives rarely works, as key employees,

customers and other parties are often hesitant to embrace a new owner they do not know well and who may know

nothing about managing a construction business.

The third alternative is to sell the business. Owners can sell to a third-party on the open market or sell internally. Con-

trary to what most assume, an internal sale is often more lucrative than a third-party sale. This is because the typical

internal sale is completed over time, typically a five- to 10-year period, so business owners can continue to participate

in the earnings of the firm during the transition.

The structure of internal transactions typically requires the buyers of the shares to use distributions from their share

of ownership to purchase additional shares of the business. As a result, both profitability and net worth are the key

metrics for determining the length of time a transition will require. For example, if an owner of a business with a 10

percent after-tax return on equity were to sell at book value, even if he gave the business to the new owners through

an interest-free note, it would require the new owners 10 years to pay it off (assuming profitability does not change

and there is no growth in the firm). Because of this dynamic, internal sales usually take a longer period to implement

successfully and are highly dependent on the “Management Succession” component of OTMS planning.

Successfully selling to a third-party is an equally challenging process. Buyers are typically looking for strong manage-

ment, unique capabilities, and a strong and diverse customer base, among other factors. This makes third-party sales

a challenge that few owners will overcome without a well thought out strategy planned years in advance.

According to this year’s survey, approximately 5 percent of respondents intend to liquidate their companies, 45 percent

intend to sell to employees or family, 20 percent intend to use a combination of gifting/sale, 17 percent intend to sell

to a third-party, and 25 percent are uncertain.

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Expected ValueValue expectations are an important factor in transition planning. Most survey respondents have a realistic notion of

value, with 48 percent saying they expected that book value would be appropriate. Nonetheless, 40 percent expect

some multiple of earnings for their business. When asked what multiple would be appropriate, 44 percent said four

to five times pretax income.

Multiples of this magnitude are on the high side of what FMI has seen paid by third-party buyers, and suggests many

owners may have expectations of value that will be difficult to meet, especially in third-party sales. More importantly,

a third-party sale terminates the seller’s economic involvement in the business. Internal sales, on the other hand, are

typically priced at book value, but as mentioned previously, the owners continue to participate in the earnings stream

of the business during the transition period, making their effective consideration for the business much higher.

Gradually sellingmy existing stock

over a period of time.

45%

A note at anagreed-upon

value.

Other Through a newentity, such as

an Oldco/Newco.

Selling toan ESOP.

23%18%

10%4%

I AM SELLING MY STAKE IN THE COMPANY BY:


FOR THE BUSINESS WOULD BE BASED ON ...

EXPECTED VALUE

THE MULTIPLE OF PRETAX EARNINGS I EXPECT TO RECEIVE FROM MY BUSINESS IS ...

IN 2011, COMPANY’S PRETAXRETURN ON EQUITY WAS ...

15%

NEGATIVE

29%

15% 16%

25%

0% to 5% 5% to 10% 10% to 20% >20%

(PRETAX EARNINGS DIVIDED BY SHAREHOLDERS’ EQUITY)

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COMPARISON OF CHANGE IN PRETAX EQUITY FROM 2008 TO 2011

2013 FINANCIAL PERFORMANCE EXPECTATIONSARE TO ...


The “Lingering Ownership Transition” As noted above, few owners will actually sell to a third-party. The majority will structure a plan to sell to employees

and/or family members. One trend we have recently written about is what we are calling the “Lingering Ownership

Transition.” We are seeing a shift in the way sellers think of “retiring.” Sellers are taking a slower approach to the sale,

and sometimes the process does not have a defined end date. This approach is also indicated in our current survey

response, as 45 percent of current owners with a plan in place are gradually selling their existing stock over a period

of time. Several factors are driving this change in thinking:

1) People are living longer – The prospect of living to 90 or 100 means that retirements are longer, which, in turn,

implies that retirement income may potentially be needed for decades.

2) Traditional retirement investments have been underperforming for more than a decade. Since 1999, the stock

market has been essentially flat, interest rates are nominal, and real estate has struggled. The strategy of living

off the income from traditional retirement investments is not working very well. Trading stock in a profitable

private business for traditional retirement investments is not very appealing economically.

3) Many business owners want to stay engaged in their businesses. Pure retirement does not appeal to all. The

traditional model of working until the magic number of 65 is no longer desirable to many owners who still

want to contribute while reducing their time obligations.

4) Government’s role in the economy undermines confidence in the future. In combination, budget deficits, trade

deficits, the falling dollar, entitlement liabilities and expectations of rising taxes undermine the confidence of

business owners. Will inflation and taxes eat away at personal net worth and the retirement nest eggs in com-

ing decades?

The reaction of some business owners to this environment is to put off transition planning indefinitely. Due to the

recession, many construction company owners have put their plans on hold to rebuild both their businesses and their

personal net worth. Others sincerely want to sell and move towards retirement, but are unsure how to proceed in

the new environment. Some business owners feel the need to tie in the next generation with ownership, but are not

sure they are ready to make the full transition. For those who want to begin the process, FMI is seeing what we call a

“Lingering Ownership Transition Strategy.” It works like this:

1) The selling owner(s) begins a process of selling a portion of the business to the next generation with the intent

of retaining 10 percent to 51 percent of the company indefinitely.

2) The Selling owner(s) continues to work, drawing salary and benefits while transitioning responsibilities to the

next generation.

3) A buy/sell or stockholders agreement is put in place that protects the business and is in the best mutual interest

of both selling shareholders and the next generation of shareholders.

4) Sellers maintain a flexible transaction structure that allows them to retain some ownership indefinitely, but

also a structure that can be accelerated should full retirement be desired. The advantages of this structure for

the seller are that it maintains income for the indefinite future, holds exit options open, and locks in the next

generation. The owner’s slow exit also provides stability for the organization, less financial strain on the com-

pany and, hopefully, a positive mentor for the next generation’s leaders.

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The disadvantages of this structure include the retention of business risk and the possible under-motivation of the

next generation.

Changes in Tax LawOnly 27 percent of owners noted that future changes and uncertainties about future tax law have influenced their

ownership transfer decisions. This issue, however, requires constant attention, as the implications for owners can be

significant. While Congress may act to avert the so-called “fiscal cliff” prior to 2013, it is unlikely that tax rates will

decline substantially in coming years, as deficits and entitlements grow at both state and federal levels. Furthermore,

a polarized political climate is likely to result in frequent changes to the tax code. As a result, owners will need to pay

close attention as they plan to implement their transition plans.

Unfunded Union Pension PlansConcerns for underfunded or unfunded union pension plans or multi-employer pension plans have been rising

across the country. Funding levels for pension plans can be a huge liability for some companies. Sixty-eight percent

of those respondents who were owners of firms employing union labor said they have potentially unfunded pension

withdrawal liabilities. However, only 34 percent of those with potential pension liabilities said they had concerns that

it would affect their ownership transfer plans.

Personal Liability and BondingFifty-four percent of the owners of construction firms answering our survey personally guarantee bonds for their com-

pany’s jobs. However, only 60 percent of those guaranteeing bonds have a plan to remove themselves from that obliga-

tion at this time. For companies with significant bonding requirements, the involvement of the surety is an important

aspect of transition planning. Sureties typically welcome the discussion.

We are more focused on longer-term management and leadership succession

than we are focused on ownership transition.

“

“


Unique Aspects of Family Businesses“At this point, there is no third generation involved in the business.”

“Gifting stock to two sons now, I am not in the day-to-day running of the business, but still come into the of-

fice most days. Both boys own about 10 percent each as of now. I still draw a weekly check and oversee the big

picture. Employ about 100 people; it is a service business, 40 years old.”

“Some questions I could not answer. At the age of 45, I am indifferent as to my children’s involvement in the

future. They are too young for me to determine, and I just want the most qualified people to run it in my

absence. If they are a match, I would envision a combination of gifting and purchase of shares. As for the last

question, we are more focused on longer-term management and leadership succession than we are focused on

ownership transition, other than death or disability (sufficient life insurance on the two legal shareholders). We

are working toward a ‘three-deep’ succession for all of key positions. Emergency, one to three years, three to

five years. Obviously, we have a few gaps.”

Sixty-two percent of the respondents to our survey consider their businesses to be family businesses. While 43 percent

are still in the first generation, 30 percent have made it to the third generation or longer. This is typical across the

construction industry. Family businesses have all the challenges of other businesses when it comes to management

transition and ownership transfer, and family relationships often compound the transition problems. It is notable that

only 57 percent of the owners responding to the survey prefer that family members own the business, and a similar

number (52%) prefer that family members run the business.

Despite the fact that only about half the owners expect family members to own or run the business, 73 percent have

family members active in the business now. For 66 percent, family members are recipients of stock upon the owners’

death. Eleven percent of current owners inherited stock in the business, but most purchased (55%) or received stock

as a gift (25%). For those who do intend for family members to run the business, 68 percent expect the next generation

will receive stock through a combination of purchase, gift and inheritance.

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DO YOU CONSIDER YOUR BUSINESS A FAMILY BUSINESS?

HOW MANY GENERATIONS HAS THE BUSINESS BEEN IN YOUR FAMILY?

43% ARE IN THE FIRST GENERATION OF THEIR BUSINESS


DO YOU HAVE FAMILY MEMBERS ACTIVE IN THE BUSINESS ...

IF OWNERSHIP IN THE BUSINESS WAS THE

RESULT OF A TRANSACTION WITH A FAMILY MEMBER, WAS IT ...

ARE FAMILY MEMBERSTHE RECIPIENTS OF STOCK IN THE EVENT OF YOUR DEATH?

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DO YOU PREFER THAT

FAMILY MEMBERS ULTIMATELY RUN THE BUSINESS?

IF YOU INTEND FOR FAMILY MEMBERS TO RUN THE BUSINESS, HOW WILL THEY BECOME SHAREHOLDERS?

FAMILY MEMBERS ULTIMATELY OWN THE BUSINESS?

DO YOU PREFER THAT


ConclusionThis year’s survey reinforces two of FMI’s core beliefs about the coming decade:

1) Talent is the key variable that will stratify the performance of contractors in all segments. If 52 percent

of owners do not have the management in place to support them if they were to leave the business tomor-

row, how do they intend to find it? For many of the “type-A,” baby boomer owners, this means ceding some

responsibility and day-to-day decision making to top performers. This is no easy task and is often one of the

reasons many contractors resist transition planning altogether.

2) Companies that plan for the demographic shift are more likely to benefit from it. Companies that have a

robust, well-thought-out transition plan that motivates key managers and provides clear lines of succession

and transition are light-years ahead of companies that do not. In the war for talent, strong employees will

gravitate to well-run companies with clear ownership and management opportunities. Companies that rely

on one or two key managers that are hesitant to give up control will find themselves selling into a third-party

market with little appetite for their firm.

These issues present unique challenges to an industry that is highly fragmented and dominated by family-owned busi-

nesses. If owners cannot find the talent to manage their firms following their (eventual) retirement, they will lose the

ability to dictate how ownership will be transitioned.

With these dynamics in play, it is increasingly important for owners to start planning early and focus on the long-term

development of the next generation of leaders.

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Ownership Transfer Planning With FMIWe have assisted hundreds of privately held construction industry firms in solving the complex issues associated with

the transfer of ownership between owners and employees. We regularly partner with family and non-family businesses

of all descriptions and sizes on a national basis through our Ownership Transition practice.

The goal of our service is to assist engineering and construction industry firms in planning for the continuity of their

businesses with minimal disruption to the organization, while tackling key issues such as risk, valuation, management

succession, capital preservation and executive compensation.

Our approach to succession planning is relationship-oriented. We consult with clients on an individual basis to en-

sure their goals and unique circumstances are addressed in the design and implementation of an effective ownership

transfer and management succession plan. As a client’s needs dictate, we can offer the knowledge and expertise of our

industry experience to ensure a comprehensive approach to the issues surrounding the internal transfer of ownership

within a construction company.

If you would like more information about our Ownership Transition practice, would like assistance with your own

succession plan or have questions about this survey, please contact Landon Funsten at [email protected] or at

919.785.9284 or Tim Sznewajs at [email protected] or at 303.398.7214.

About the AuthorsLandon Funsten is a managing director with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment

Banking subsidiary. He works extensively with contractors throughout the country, focusing on stock valuations,

buyer and seller representations, and business continuity.

Tim Sznewajs is senior managing director with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment

Banking subsidiary. Tim works exclusively with construction industry firms, focusing on mergers and acquisitions and

ownership transfer issues.

Scott Duncan is an associate with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking sub-

sidiary. Scott works with construction industry firms on mergers and acquisitions, valuations and ownership transfer

issues.

Phil Warner is a research consultant with FMI Corporation. He specializes in construction industry market research

and manages FMI’s Nonresidential Construction Index survey. In his nine years at FMI, he has conducted research

and produced reports on a number of economic and management issues for the construction industry including busi-

ness development, productivity, strategy, owner practices, industry ethics and successful contractors. He frequently

contributes articles for a number of industry trade magazines and FMI publications and publishes FMI’s quarterly

Management Letter.

About FMIFMI is the largest provider of management consulting, investment banking and research to the engineering and construction

industry. We work in all segments of the industry providing clients with value-added business solutions, including:

� Mergers, Acquisitions and Financial Consulting

� Strategic Advisory

� Market Research and Business Development

� Leadership and Talent Development

� Project and Process Improvement

� Compensation Data and Consulting

� Risk Management Consulting

Founded by Dr. Emol A. Fails in 1953, FMI has professionals in offices across the U.S. We deliver innovative, customized

business, management and financial solutions to architecture and engineering firms, construction contractors, materials producers,

manufacturers and distributors of building products and equipment, owners and developers, utilities and AEC trade associations.

FMI is an advisor you can count on to build and maintain a successful business, from your leadership to your site managers.

Raleigh5171 Glenwood AvenueSuite 200Raleigh, NC 27612Tel: 919.787.8400Fax: 919.785.9320

Denver210 University Boulevard Suite 800Denver, CO 80206Tel: 303.377.4740Fax: 303.398.7291

Scottsdale14500 N. Northsight BoulevardSuite 313Scottsdale, AZ 85260Tel: 602.381.8108Fax: 602.381.8228

Tampa308 South BoulevardTampa, FL 33606Tel: 813.636.1364Fax: 813.636.9601

www.fminet.com

Copyright © 2012 FMI Corporation

Notice of Rights: No part of this publication may be reproduced or transmitted in any form, or by any means, without permission from the publisher.

Documents

More than half of the owners surveyed don’t have a ... - FMIlp.fminet.com/rs/.../OTMSSurveyReport_2013_FINAL.pdf · “FMI’s 2013 Ownership Transfer and Management Succession