OITA – Mergers and acquisitions by blue-chip companies make the headlines, but the smaller deals have become extremely important to the survival of small and medium-size firms that cannot find successors to run the business.
With the baby boomer population ready to retire, there are fears that retiring business owners with no one to take over from them will be forced to shut down their companies, which will have a major economic impact on their communities.
M&As are a way to stop that from happening.
“I felt I was not suited to running a business,” said 52-year-old Yumiko Kawano, managing director of Hope Life Inc., a company based in the city of Oita. “Frankly speaking, I was tired,”
Kawano’s 56-year-old husband established Hope Life to sell “yuzu” citron, a local fruit, and yuzu products in 1983, after quitting his white collar job.
Things changed, however, when he collapsed from a stroke during a business trip in Tokyo in March 2003. Kawano had to take over the company.
Her new role as president meant she had to learn how to deal with customer visits and do the accounting.
Although she had worked for a pharmaceutical company, she said her new role in the company with about 10 employees made her anxious.
“Being an employee and being a company manager are quite different,” Kawano said.
She wanted to quit her position, but her two daughters, aged 18 and 23, were too young to take over. So Kawano sold the company to a firm based in Kurume, Fukuoka Prefecture, that sells propane gas and runs drugstores.
She has abandoned all management rights to Hope Life, but remains the company’s managing director and arranged for all the employees to keep their jobs.
“Seventy to 80 percent of the reasons people sell their companies are linked to the difficulty of finding a successor to the business,” said Yasuhiro Wakebayashi, president of Nihon M&A Co., a Tokyo-based firm that consults on more than 400 cases of company sales a year.
The task of finding successors for these enterprises is especially difficult because of the responsibilities the managers must take.
When a small firm wants a loan, the head of the company often has to put up personal assets, including a home, as collateral.
Many small businesses that started during the high-growth period are now passing on to the next generation. The mass retirement of baby boomers begins in 2007.
“Due to a shortage of successors amid the declining birthrate, it is quite hard to find someone to hand a company down to,” Wakebayashi said.
A 2003 survey by the Organization for Small & Medium Enterprises and Regional Innovation Japan, an independent administrative firm, showed that more than 80 percent of enterprises with fewer than 20 employees are forced to stop doing business or completely liquidate when their presidents retire.
The search for successors is an especially desperate one in rural areas, which are seeing their populations decline faster than the cities.
SMRJ believes M&As can help firms survive when there is no one to take over leadership and will launch a “business successor fund” in the spring.
SMRJ will invest the money in private funds that support businesses that have no one to head the firm and try to find firms to take them over. It will also facilitate management buyouts, in which managers can take over a firm by buying up its shares.
The government’s Small and Medium Enterprise Agency also has established a consultative body of accountants and other experts. It will release a report in April that will include measures to ensure smooth management handovers by giving successors golden shares, which will give them special voting rights to prevent quarrels over succession.
For companies with huge liabilities, the harsh reality is that only about 30 percent to 40 percent of them can be taken over, according to Wakebayashi. In addition, competition will intensify as globalization increases.
“If enterprises disappear, precious technologies that were fostered in these areas will also be lost,” one SMRJ official worried.