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The ageing of SME managers: an economic predicament
Building on research devoted to the transfer of SMEs published in BPCE L'Observatoire Notes on May 14, 2019, attention has been focused more specifically on the ageing of business owners. One in five SME and ISE proprietors were aged 60 or more in 2016 compared with fewer than 15% of the total in 2005. This observation is all the more significant when we consider that the slump in the company takeover market in France was even greater for businesses run by more elderly managers.
The approximately 30% decline in company transfers between 2013 and 2016 dispels the widely held belief that the sale of a company (a downward-oriented market) is principally determined by the advancing age of its senior managers (a continuing trend). Indeed, the decline in transactions during this period was greater when the managers were at retirement age and less marked when the sellers were in their forties or fifties. Transfers related to the advanced years of their owners – operations that, by definition, are more structural in nature – have not proved to be more resilient than the ‘opportunity operations’ undertaken by younger entrepreneurs. The ‘natural’ renewal of the population of business leaders is a long time coming….
The average age of SME managers is consequently rising: while 17.4% of them were aged 60 or more in 2010, this proportion rose to 20.5% in 2016 and is expected to exceed 23% in 2021! This trend reflects a repeated shortfall in transactions when the managers reach retirement age: while the gap between firm intentions to sell and transfers actually concluded is small for managers under the age of 55, this gap widens significantly when the owners are older than 60, where effective transactions correspond to fewer than one half of certain and short-term intentions to sell. This shortfall is notably due to a number of inhibiting factors that often lead managers to defer the preparation and subsequent implementation of the sale of their companies. The fear that confidentiality will be compromised (a fear exacerbated by the so-called Hamon law), uncertainties about the quality and cost of consultancy services, the complexity of regulations but also, on a more personal level, the severance of their link to the company, the change in their social status, and the desire to find more of a ‘spiritual heir’ or ‘alter ego’ than a mere buyer with enough cash to buy their company, all contribute to postponing the transfer operation.
As people get older, managers often adopt an early strategy of capital consolidation, debt reduction and under-investment. Less responsive to changes in their markets (demand, standards, technologies, etc.) and more dependent on the personality of their managers, the companies lose value and may even become unsellable. On a macroeconomic level, the country’s growth potential declines and, on a microeconomic level, the sale is compromised by a lack of interest or the reduction in the value of offers made by potential buyers. Lastly, if the shortfall in company transfers has not yet led to an upsurge in the demise of SMEs, there are greater numbers of managers who remain at their posts at more advanced ages.
