Nurturing the next generation

Succession planning has always been a sensitive spot for Australian family businesses including printers. They don’t do it that well; they’re not comfortable with it. An annual survey of nearly 700 family businesses undertaken by KPMG and peak body Family Business Australia found that 57% of incumbent respondents were concerned about the motives of their potential successor, and 63% admitted some concern about the ability of their successor.

It is a particularly sensitive issue for printers. There was a time when printers had their business and retirement all sorted out. They would get to the stage where they would sell the business or pass it on to their kids. How times have changed. With the economy stuck in low growth mode and problems besetting the print industry, it is harder than ever to sell for a good return.

The asset value of printing equipment is now well below what it once was and the industry is struggling with overcapacity. To put it simply: too many printers, not enough work. Furthermore, the next generation is not interested in taking over. Many can see the struggles their parents have had with the business and want to branch out on their own. Meanwhile, a manufacturing trade like printing doesn’t hold the same appeal as sexier, service-based industries.

This is why succession planning and exit strategies have been put on hold.

The ageing population makes it worse. It is not just the printing industry that is going grey – it is an issue for the whole economy. Look at the BRW 200 Rich list: 149 of them are aged 65 and above. That is reflective of the wider business community. Most family businesses are now managed by people over the age of 50.

Good succession planning and exit strategies require strategies (see box, overleaf). Tim Gullifer, a partner at Deloitte Private, says the big problem is that many printers are reluctant to sell the business in good times when the work is coming in. They only start thinking of getting out when things get tough. It’s hardly surprising, he says, that they won’t get the right price.

Gullifer says it is good practice to constantly review exit options, whether the going is good or otherwise. “You have to choose your moment although not everyone gets the opportunity.”

A study released in January by Melbourne-based RMIT University and MGI, a consulting firm specialising in family businesses, found that only 25% of family business owners considered selecting a successor a crucial issue. On the flipside, almost two-thirds said the next generation was less interested in the family business than they were.

Selling the business was not much of an option either. The study found that only 61% of family business owners would consider selling the company. That was well down on the 75% who felt that way in 2006. Why is that? Because only one in three respondents felt the company was in shape in this economy to be either sold or passed on to the next generation.

Acute problem

It’s an issue that is now top of the agenda for the Printing Industries Association of Australia (PIAA). Its chief executive, Bill Healey, says it’s a particularly acute problem for the our industry. “Printing has grown up as craft-based small business operation and a large percentage of our members are small businesses.”

“You also have an ageing business ownership and what’s occurring is the industry is going through structural change in terms of demand for printed product and how that’s delivered. So what’s happened is that people are getting to the age where they want to move out of the industry so they have succession planning issues but there’s also a broader issue of how you exit the industry.

“Your exit strategy might have been based on selling the business. But surface capacity means that the demand has dropped off substantially over the past decade because of the structural changes and the changes in new technology and printing, as well as the shift towards online communication and the overall drop in demand for printed product,” adds Healey.

To address this issue, he says, the association and the Printing Industry Working Group are now working with the government task force on manufacturing to develop strategies for structural adjustment to ensure print still has a role to play in the emerging multichannel communication world.

“Through the Printing Industry Working Group, we’ve identified that there is a need to help businesses come up with ways to adjust to changing circumstances. We recognise that in addition to that, with the restructure of the industry, there needs to be a way of looking to help people leave the industry if they feel they are no longer suited or no longer want to be part of the industry. We need to look at ways of assisting people make that exit.

“We believe the industry needs a plan to adjust to the structural adjustments and make a transition to being an industry that will remain viable in the new communication era,” says Healey.

Initial ideas include identifying business brokers with expertise in business planning and working with the govern-ment’s Enterprise Connect program, which connects businesses with specialist knowledge. Succession planning and advisory services are also being looked at.

Healey says payouts or compensation for printers wanting to exit the industry was another option although he concedes that is unlikely to get up. “In an ideal world, there would be some compensation to help people leave the industry. One of the problems with exit is that the value of the businesses has diminished.

“The government is looking at the future of the manufacturing industry with the Prime Minister’s task force on manu-fac-turing. At all levels there is a recognition that this is an industry that has a long-term space but it does require structural adjustment and we are in the process of giving thought to how you flesh out a plan that outline the structural adjustment.

“Given the budget position, it’s highly unlikely the government will throw money at us but that’s frustrating when you think that they throw money at lot of other industries that perhaps are less viable in the longer term than we are,” he says.

(Significantly, Healey was discussing the issue with ProPrint the day before it was announced that Holden had secured $275 million from state and Federal governments to stay in Australia.)

Smart operator

Good succession planning is usually a case of strategic and rigorous management. One of the best examples is Franklin Web, which operates out of Melbourne and Sydney. Succession planning is part of the company’s ethos. The company is the second largest catalogue producer in Australia and was started by Leonard Taylor in 1936. It is now run by his son Phil, 60, whose own son, aged 30, and daughter-in-law are working there, ready to take over when the time is right.

Phil Taylor says it all starts with the company’s apprenticeship program. Apprentices come in, are trained up and they stay. Extraordinarily, the company has nine fathers and sons working there.

“A lot of our succession planning hinges on the fact that we have always had fantastic apprenticeship training,” Taylor says. “Nearly all of the guys now in their ’40s did apprenticeships with the company.”

The stability provides the back-up and expertise for a smooth transition by creating a stable platform of managers who know the company inside out, which is key to good succession planning, says Taylor.

“There’s a group of guys heading towards 60 who trained the 40-year-olds, and they in turn are training the 25-year-olds. It will be the 40-year-olds who provide the stability while the younger generation are still learning the ropes.”

That should make for a seamless transition when his son moves into the top job. “He will take over at an earlier age than I did but he’s going to have more resources at his fingertips. It’s fantastic to be able to pass the business on from generation to generation. The only way that my son won’t make mistakes is by having a group of people around him and he appreciates that.”

That kind of coaching and back-up has been crucial in other successful succession plans. Seven years ago, Mark Steur and Martin Nekuda took over the business of Goldcraft Embossing from their respective fathers, who had both been partners for 40 years. At the time, Martin was 33 and Mark was 31. Neither had worked in printing before. Martin came from a hospitality background, Mark was working in marketing.

Martin Nekuda says the pair’s fathers had been at their boys for years to enter the business. “I was living Queensland at the time when the offer was put to us. My wife and I looked at it and we thought about what we could achieve by moving back to Sydney. Mark was keen and it all came together”.

“For me it was the right decision. I think what I was doing in hospitality had a bit of a shelf life. But with this, I would ultimately get the opportunity to work for myself in what has become a good partnership.”

The fathers coached their sons on how to run the business, gradually giving them more and more responsibility until they saw it was time to step back. “It’s different from coming into an industry and starting a new job,” Martin says. “When we had the intention of taking over, it brings a certain level of commitment and enthusiasm.

“We loosely ran things but for the last 12 to 18 months that they were here; they were in the background but there if we needed them.

“While the learning curve has been massive, it gives us the chance to work for ourselves and get everything that goes along with that.”

Another take on a successful succession strategy was taken by Tony Coleman, the managing director of Coleman’s Printing in Darwin. The business wasn’t handed down – he bought it from his father, Gary.

Coleman is a third-generation printer. The business was started around 1955 by his grandfather, who sold it to Coleman’s father and his uncle. Coleman and his two brothers bought the business from their father seven years ago. For Coleman, there was never any doubt it was going to happen.

“I left school and wanted to be in printing and be part of the family business so I did my apprenticeship here,” Coleman says. “From the time that I was production manager, the succession planning started coming into play.”

He says purchasing the business, instead of getting it handed over, ensured a smooth and commercially focused succession process. “At the end of the day, family is family and that’s important but it’s still a business you’re still buying a business, whether it’s off family or somebody else,” he says.

He says his father had sold it with a view to ensuring the business would continue. “He wanted to make sure the business was successful. He was not going to sell it for the sort of money where the business was not going to succeed. His interest is that the company continues for a long time.”

Coleman is now in the process of working through a succession plan with his brothers, working through such scenarios as what would happen if one of them were to leave or die.

As part of the deal with Gary, space had to be made for his father to work out of the office. He says his father is not involved in the day-to-day running of the business but occasionally, Coleman comes to him for advice.

“I admire him for that because I think it would be one of the hardest things in the world when you are still coming into a company day to day and you’re seeing things happening and not getting involved. He is very much on the outside, but if I need help, I’ll go to him and he’ll get involved then.”

Career development

Other companies focus on rigorous training of managers to ensure they will step up to the plate if needed.

At Pegasus Print Group in Blacktown, chief executive Wayne Finkelde’s two sons Joel and Shaun have both been active in the company. Finkelde says succession planning is not really a first order issue at the moment but the main focus is on training managers to step up. “There are a number of managers here. We go through training with a number of managers but in terms of succession to myself, it’s not something that we really have identified to take over that role.

“In other positions, if someone leaves, we will probably escalate someone from the next level down. In operational management, we have enough managers in there we believe could escalate to the next level and train. In terms of senior management, we have discussed succession planning but haven’t put anything in place.”

“I would say it would probably be put firmly on the agenda in another five years when someone like myself is 57 or 58 years of age and I’m pretty sure it will be discussed then.”

That said, the company has always focused on training managers so they can move through the ranks and replace others when they move on. “We’ve always promoted from within and we continue to do that from an operational perspective.”

In the printing industry, which is largely a sector of self-made men, there can be a fine line between good operator and autocrat. Finding someone to take over is one problems, loosening the grip on the reins is another. It is no wonder that there are so many stories of succession plans gone awry. But succession planning is somewhere that business and family collides, so it is little surprise that few printers are eager to go into details of strategies that didn’t quite go according to plan. It is a sensitive issue.

Tom Lusch, managing director of one of Queensland’s great printers, Platypus Graphics, had tried grooming his son, Aaron, to take over. But Aaron decided it was not for him. “It was a little bit disappointing but then, I never worked for my father either,” says Tom.

Aaron says he is still involved in the business but did not want to go into detail. In any case, he says, his two brothers are involved in the business. “We are on good terms and there is always the opportunity to get back involved a little bit more. I may do that back down the track but here probably isn’t a story in it.”

Another family-owned Brisbane powerhouse, Fergies Print & Mail, tried the transition outside the family when it appointed former Fuji Xerox manager Richard Sloan as chief executive in 2009. That lasted about 18 months. Managing director John Ferguson won’t go into any depth, pointing out that he is now very happy with Fergies chief executive Alan Brodie.

“Every company has those issues. It’s a big business. I am the owner. I am not about to do an about face and walk away from the place and leave other people to run it without any form of control.

“We are not in the business of spilling our guts to the trade magazines and I really think we should stop there,” adds Ferguson. (Sloan refused to comment.)

Successful succession planning is about putting in place a strategy to deal with the time when the owners will no longer be in control. There are firms that don’t do succession planning or exit strategies properly and there could be a number of reasons for that, from the global financial crisis to the lack of suitably cashed up buyers. Or maybe no one is interested in taking over. Preparing a company for a sale and preparing a succession plan are two different processes. But done well, both increase the value of the business. That means always being alert to what’s going on in the market. As Gullifer says: “You need to be constantly looking out.”

 

 


 

Jargon buster: exit strategies

Management buyout Selling the business to the management team, usually with the backing of a private fund. The transaction allows the individuals involved to get a significant stake in their own business and run it.

Trade sale Selling to a competitor or consolidator.

Private equity This is very much dependent on the state of economy. Private equity was very active in printing in the past decade (Blue Star and Geon) but that dried up when the global financial crisis hit.

IPO Floating the company on the stock exchange, as has just been done by Opus Group, though that is likely to be a rare example in this era. IPOs are done by many firms but it’s an expensive process. You would need hundreds of million of dollars in turnover to justify the millions you would pay on legal fees, accounting fees and experts who would advise you on the complex compliance requirements. It costs money to raise money.

 

 


 

 

Tips for succession planning

Nine questions to ask

1. Have you defined your personal goal and vision for transfer of ownership and management?

2. Is your successor identified and in place?

3. Have you considered the importance of family involvement in leadership and ownership of the company?

4. Have you considered techniques to legally reduce your tax on exit?

5. Do you have enough liquidity to avoid the forced sale of your business?

6. Do you have a shareholder agreement with the family members in place for the exit of family members?

7. Do you have a contingency plan should you become disabled?

8. Have you had your business valued recently?

9. Will you completely end your involvement in the business or develop a creative retirement structure?

From The Art of Business Succession by Deloitte Private partner Craig Holland

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