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What Will Drive Your Ownership Succession Plan?

By AICC Staff

May 27, 2016

PortraitAs of this writing, there have been six announcements in the past month of acquisitions of independent converters—AICC members all—by other companies in the industry. Sound Packaging, Excel Displays, Empire Container & Display, Drake Container, Omaha Box, Scope Packaging, and H.P. Neun are now owned by other entities. Now, nothing about this is extraordinarily unusual, except that this latest flurry of activity follows a particularly active two years for company consolidations, mergers, and acquisitions. It causes me to wonder: Why the sudden surge and appetite for independent companies?

Is there a common thread to be found in this list of acquisitions? Our industry analysts will tell us that a familiar dynamic is at work in the industry: Successful companies are looking for strategic growth opportunities in certain market areas. This can certainly be said about Smurfit Kappa Group, whose acquisitions in the Southwest border states are a natural complement to its holdings in Mexico. Or Atlantic Packaging, whose moves in Ohio and Illinois give the Canadian company an outlet for its mills in the Toronto area. But the overtures made by these companies would not be answered were it not for another dynamic—that of many independent owners looking for an exit plan.

A survey done by AICC of its member base last year showed that independent corrugator plants have been in business an average of 67 years, with 58 percent run by second- or third-generation owners. For sheet plants it was 43 years. Two-thirds of these (67 percent) are in the second generation of ownership and close to handing off to the third, the point at which the chances of success drop dramatically. According to the Family Firm Institute, only about 30 percent of family businesses survive into the second generation, and only 12 percent are still viable into the third generation. Beyond this, only about 3 percent of all family businesses operate into the fourth generation or beyond.

What I would propose is that all members start thinking about their business as an entity unto itself. This is what our immediate past Chair, Greg Tucker, was talking about when he proposed that members jettison the “lifestyle company” and instead focus on the “professionally run company.” The latter will not only allow the owners to build wealth, but also drive them to have a plan for its transfer—whether to the next generation of family, or employees, or to reap it in a sale where the company’s value is maximized for the benefit of the ownership group.

Where does your company stand in this process? If you want to know more, I suggest you check into a program offered by Holly Green, called “Ready, Aim… Win!”

Steve

Steve Young

President, AICC