Howard Lickens, executive chairman of broking business The Clear Group explains the potential pain points for internal succession solutions and what today’s leaders need to consider ahead of their exit

By The Clear Group Executive Chairman Howard Lickens

There comes a time when we all start to feel our age.

As I approach my own 65th birthday (no cakes please!), it’s natural to worry about the next generation. And it’s the same for businesses.

At Clear, sustainability has always been important. I don’t mean saving the planet - although that of course is essential - but ensuring the business flourishes over the short, medium and long term. But how can that be achieved as the company leader gets greyer and greyer?

For some brokers, the next generation is already part of the leadership team, ready to start moving into the limelight as the founder exits stage left.

The issue for them may be value. Founders don’t necessarily want to sell their shares at a deep discount and management don’t want to be penalised for their success by paying a premium price.

Brokers are great problem solvers, so there is normally a way forward, especially where the company can fund the buyout from its own cashflow.

This leaves two situations where an internal solution may be difficult. Firstly, where there is no obvious successor and secondly, where the value is too high for the next generation to finance.

The successor issue is particularly common in small brokers. We see this a lot and it’s a real challenge for them to recruit the next leader. It’s expensive, risky, time-consuming and frankly hard to find the right person and then to persuade them to finance an exit.

Some succeed, but in a buoyant M&A market, it is often far easier to find the right partner to take over the business, leaving succession to the new owner. It’s then a question of finding a buyer prepared to consider all stakeholders - clients, staff, carriers - allowing the founder to exit at his or her chosen pace.

The second challenge is where the business has been too successful. Many relatively small brokers are now worth between £2m and £10m and in some cases even more.

If the founder has retained full ownership, how reasonable and how practical is it to expect the new leader to take on so much debt? Some founders have planned for this by sharing out equity as they have grown, but for others it’s an impossible hurdle. So, an external solution becomes inevitable.

For larger brokers with a strong leadership team, private equity may be the answer as long as that team has an appetite to grow. Institutional investors will not back ‘lifestyle’ businesses and must be confident they will double their investment in four or five years.

For less ambitious brokers, a call to a friendly consolidator may be the best solution for everyone - but like most things in life, not all consolidators are the same.

My advice to small brokers thinking of their future is obvious - plan early as it’s probably a three-year journey.

Internal succession keeps it in the family, but you need to trust your successor, get them participating early on and training for leadership.

For an awful lot of brokers, some sort of external solution is inevitable so ask around, seek advice from those who have been through it and look for the solution that suits you.