North Bay Business Journal

Monday, February 6, 2012, 5:40 am

Internal transfer or sale? Succession experts weigh merits

Event explored the two possibilities through case studies


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    SANTA ROSA – While developing an exit strategy is one of the classic issues facing all business owners, a wave of aging baby boomers has made succession planning a particularly high-profile concern for those in the North Bay and beyond.

    Jim Hurd of BKF and Tom Fraser of WRA

    This January, the volume of that concern was made clear after a room of raised hands signaled “yes” to WRA Environmental President Tom Fraser’s question: Who here anticipates leaving their business in the next 10 years?

    Moreover, asked Mr. Fraser and others at the North Bay Business Journal event titled, “Who will take over your business?,” was the question: Who among the region’s business owners have planned sufficiently for that transition?

    The challenges of developing an exit strategy – especially during new economic realities – took center stage at the sixth-annual event.

    Attendees heard two distinct case studies representing approaches to a leadership transition. In the first case, Mr. Fraser explained how he and others at the San Rafael-based environmental consulting firm took part in a gradual transition of ownership to employees.

    “There’s a whole new energy and revitalization of the company,” Mr. Fraser said.

    Contrasting that example was Greg Hurd, principal and vice president at BKF Engineers, who explained how the former Carlenzoli and Associates successfully merged with the larger firm in 2009.

    “I was thinking about the employee reaction,” he said. “Did they really want to be at a small firm, or would they be OK being at a larger firm?”

    Jim Andersen, left, and Dick Abbey

    Joining the two men was an expert panel on mergers and acquisitions: Dick Abbey, partner at the law firm Abbey Weitzenberg Warren & Emery, Jim Andersen, partner at the Santa Rosa office of the accounting firm Burr Pilger Mayer and Bill Schrader, president of Santa Rosa-based Exchange Bank.

    In the case of WRA Environmental, Mr. Fraser said that employees have been given the chance to purchase shares of the company over the past ten years. WRA loaned employees money to finance those purchases, offering a low rate and avoiding the impact that outside financing would have on the company’s regular credit line.

    He noted that the plan was developed over 30 years, starting with the company’s founding partners. Today, there are 11 owners in the 50-person staff at WRA Environmental, and Mr. Fraser said that new employees are drawn to the culture that the employee transition maintained.

    Mr. Hurd said that the decision to roll Carlenzoli and Associates into Redwood City-based BKF also unfolded over several years. A former partner at Carlenzoli, Mr. Hurd said that what began as informal conversations eventually developed into a nondisclosure agreement in 2009. “Hundreds of phone calls later,” the two firms merged that October.

    The approach involved the buyout of Mr. Hurd’s former partner at Carlenzoli, as well as monthly payments over the following 5-6 years before the retirement of those shares.

    Day-to-day operations remained similar after the merger, a condition that Mr. Hurd said helped to retain most of his staff. The advantages of joining the larger BKF, he said, included a broadening of the scale of contracts that his staff could be involved in.

    His advice was “start early,” citing details like timecards, public relations, the need for an attorney with tax experience and the preservation of client relationships.

    Mr. Andersen of BPM provided accounting and advising services to both firms. An internal transfer, he said, worked best when a firm had a number of strong employees at different ages and levels of the organization. A merger worked best if that staff was not in place, allowing the firm to interface with a preexisting organization structure.

    Finding a buyer in the current economy could be tough, especially one who was willing to purchase a company at a favorable price, said Mr. Abbey. He cautioned business owners to be realistic in how they value their company in a sale, stressing the importance of objectivity.

    Bill Schrader

    Mr. Schrader echoed Mr. Abbey’s call for objectivity and added that owners should have a “clarity” concerning the outcome they expected from their exit strategy. That outcome included the future for employees, and the risk that a sale might result in a larger firm that didn’t appeal to current clients.

    “Who’s going to define the culture?” he asked.

    A business owner should consider the help of three key players in a transition, Mr. Schrader said: a CPA, an attorney and a banker. He said that a careful lender would likely be interested in the outlook of a merged company before providing capital to support the move.

    “There’s no right or wrong way,” said Mr. Abbey. “It just depends on where you want to be at the end of the day.”

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