Australia is approaching one of the largest changes of business ownership in its history.
Over the next 10 to 15 years, a generation of baby boomer business owners will begin stepping away from the companies they’ve built. By 2036, an estimated 1.4 million Australian business owners are expected to retire, yet only around one in four currently has a succession plan.
This is sometimes discussed as part of the broader intergenerational transfer of wealth, but the challenge for business owners is more complicated than passing on a portfolio of investments or a family home. A private business can’t simply be divided or transferred without considering who’ll lead it, how dependent it remains on its founder and whether the next generation wants to take it on.
Many founders don’t have a family member who’s willing or able to succeed them. Others may have capable people within the business, but no clear plan for transferring ownership. Even where there’s a potential successor, the business may still need several years of preparation before the founder can step back confidently.
Succession, therefore, isn’t an event that happens when an owner decides to retire. It’s a phase in the life of a business, and the decisions made during that phase can have a significant bearing on what the founder ultimately leaves behind.
A substantial part of the economy is changing hands
Australia has more than 97,000 small and medium-sized businesses generating annual revenue of at least $5 million. A significant number are still led by the founders who built them, often over several decades.
These businesses are an important part of the economy. They employ people, serve their local communities and hold valuable customer relationships, operating knowledge and industry expertise. Many are profitable and well established, even if they haven’t attracted much attention from institutional investors.
As their owners approach retirement, more of these businesses are likely to come to market. Some will be transferred within families or sold to management teams, while others will seek an external buyer or capital partner.
The lower mid-market occupies an interesting position within this transition. Many businesses are too small for large private equity firms, too dependent on their founders for a strategic buyer, or too operationally involved for a family office to manage directly. Individual investors may understand the opportunity but lack the capital or resources required to pursue it.
This creates a large investable universe with relatively few institutional buyers focused on it. For firms such as Nash Capital, it also provides opportunities to invest in strong standalone businesses and identify smaller companies that could complement an existing portfolio platform.
However, the significance of this opportunity goes beyond the number of businesses that may become available. The real question is whether those businesses are ready for a successful transition.
Succession planning needs to begin before the exit
A common risk for founders is waiting too long to prepare.
A business may have strong earnings, loyal customers and a capable workforce, but still rely heavily on the owner’s relationships, knowledge and day-to-day decision-making. That dependence may have worked well while the founder was actively involved, but it can make the business harder to transfer when retirement approaches.
If a founder begins succession planning only when they’re ready to leave, there may not be enough time to address these issues. They can find themselves negotiating from a weaker position, accepting a narrower range of options or leaving value on the table.
Bringing in a private equity partner can provide another path. Rather than treating the sale of the business as a single transaction, an owner can use external capital and support to prepare for a more gradual transition.
The right capital partner can help the business become less dependent on its founder by building a stronger management team, introducing more robust systems and creating clearer structures around reporting and decision-making. It can also provide capital for organic growth or acquisitions, allowing the company to develop greater scale before the founder eventually exits.
For an owner, this can create the option to realise some of the value they’ve built while remaining involved through the next stage of growth. It can also give employees, customers and suppliers greater continuity than they might have under a rushed or poorly planned sale.
Building a business that’s ready for its next owner
Good succession planning isn’t about making a founder less important overnight. It’s about ensuring that the value they’ve created can continue without depending on their constant involvement.
That means transferring relationships and knowledge throughout the organisation, giving management greater responsibility and making sure important processes are documented and repeatable. It also means improving the quality of financial information so a future investor or buyer can understand how the business performs and where its opportunities lie.
Growth can play an important role as well. A larger business with a broader customer base, stronger management and more developed systems may appeal to a wider range of buyers. It may also attract a higher valuation multiple than a smaller company that remains closely tied to its founder, although scale alone doesn’t create value unless the underlying business improves with it.
This is where acquisitions can be useful. Many smaller businesses coming to market over the succession period may make strong additions to established portfolio companies. Combining complementary businesses can extend geographic coverage, add capability or create operating efficiencies, while giving another retiring owner a credible home for the company they’ve built.
The aim shouldn’t be growth for its own sake. It should be to create a stronger, more valuable business that can succeed under its next generation of ownership.
Preserving more than financial value
For many founders, succession is an emotional decision as well as a financial one.
Their business may represent decades of work and a large share of their family’s wealth. It can also carry their name, identity and relationships with employees who’ve been with them for many years. Understandably, most owners care about what happens after they step away.
A strong capital partner needs to recognise that the founder isn’t simply selling an asset. They’re deciding who to trust with something that has played a significant role in their life.
This makes alignment important. Owners need to understand how a prospective partner intends to grow the business, what role the founder will have during the transition and how decisions will be made. A strong financial offer matters, but so does confidence in the future direction of the company.
When that alignment exists, private equity can support a transition that preserves the founder’s legacy while giving the business the capital, structure and leadership support it needs for its next stage.
A structural opportunity for investors
For investors, Australia’s succession wave provides access to a long-term demographic trend that isn’t dependent on a short-term market cycle.
A growing number of established private businesses will need new owners or capital partners, while the number of institutional investors operating at the lower end of the mid-market remains relatively limited.
That imbalance can create opportunities to invest at attractive valuations, particularly where a business is strong but hasn’t yet developed the scale or systems required to appeal to a broader buyer group.
The value creation comes after the investment. By supporting growth, strengthening management and reducing founder dependence, a private equity owner can help develop a larger and more sophisticated business. If that work is done well, the company should eventually appeal to a wider pool of strategic buyers and larger investors.
More available businesses won’t automatically produce better returns. Success will still depend on selecting the right companies, working well with their founders and executing the growth plan with discipline. However, the scale and duration of the succession trend should provide a substantial opportunity set for investors with the experience and patience to navigate it.
Preparing for the great succession
Australia’s great succession will unfold over many years, but business owners shouldn’t assume that means there’s plenty of time.
The strongest outcomes are likely to come from founders who begin planning before retirement is imminent. That gives them time to consider the full range of succession options, strengthen the business and choose a partner based on alignment rather than urgency.
For some, the right answer will be a family transition or management buyout. For others, a private equity partnership may offer a way to realise part of their wealth, reduce their responsibilities over time and help the business reach a scale that would’ve been difficult to achieve alone.
The coming succession wave represents a significant investment opportunity, but its importance is broader than that. It’s also about ensuring that thousands of established Australian businesses continue to grow after the founders who built them are ready to step away.
Handled well, this transition can preserve business legacies, create new opportunities for employees and transfer wealth between generations without losing the value embedded in the companies themselves.
