Major business transitions are extremely common in the middle market. Generally speaking, that’s a good thing.
Major business transitions are extremely common in the middle market. Generally speaking, that’s a good thing. According to 234 middle market businesses that experienced a significant change in leadership, financing, or structure over the past 24 months, 87% say they are very to extremely satisfied with the transition overall while 81% say the experience was better than expected. 

Impressive results to be sure. However, another data point from the same survey poses a bit of a shadow on these findings. Despite high levels of general satisfaction, nearly a quarter of the owners and executives at companies experiencing transitions report at least some negative emotions post transition, such as anxiety, concern, worry, and regret. 

This suggests that middle market business transitions, while ultimately positive, are not entirely without their bumps in the road. The data and verbatim responses point to several areas that may be worth some additional consideration as middle market business prepare for future transitions. 
1. Be clear on the preparation timeframe and consider starting sooner than later. Overall, 83% of middle market business leaders overseeing a past transition say they were very to extremely well prepared for the experience.  About half of companies start the preparation process at least one to two years before the change takes place. However, 52% of businesses said they started preparing in the same year as the transition.
Given the wide variety of activities that need to occur, from conducting assessments and audits, to reviewing paperwork and contracts, to upgrading technology, improving efficiency, and even hiring new staff, 12 months or less may not be enough time to check every box. Several leaders signaled that, if they had it to do over again, they would start preparing sooner. As one executive quipped, “I wish I had more information regarding the timeline before I started the journey.”


2. Understand the importance of being digitally prepared. Compared to a few short years ago, the role of technology in middle market business transitions has increased significantly. Cybersecurity and data protection show up as top areas of concern for executives during the process. Upgrading technology systems is one of the most common actions to get ready for the change. 

Still, some executives wish they would have known or done more on the IT front in advance of the transition. Leaders specifically mentioned improving IT management and having a better understanding of the digital tools used during the process as areas that could have been better addressed.

3. Be as in tune with your employees and as forthcoming with information as possible. Just as technology has become more critical to middle market business transitions, the people impact has increased in importance as well. Middle market companies are extremely conscious of the impact of transitions on employees and they take steps to ensure a positive experience and positive outcomes for their team.

Nevertheless, many leaders signal that the human capital management aspect of the process could have gone better than it did, perhaps by putting even greater emphasis on top-down communications to employees and/or by having a better understanding of the cultural implications of the change and how to manage them. Getting the employee piece right is critical because while few middle market leaders report overall dissatisfaction with their transitions, those who do have an unsuccessful experience often report loss of key employees as the element that spoiled the deal.

4. Make effective use of resources and trusted advice. Middle market businesses are known for their resourcefulness. They are inclined to handle many elements of their businesses internally, and transitions are no exception. Nearly every company experiencing a transition in the past 24 months relied on the expertise of internal resources to guide the process. Top management, financial leaders, and c-suite executives are the most commonly consulted experts; these professionals are also considered the most important members of the transition team.

However, middle market companies don’t undergo transitions completely independently. The vast majority (88%) of firms also involve one or more external consultants, such as a lawyer, tax advisor, private equity partner, or corporate or investment banker. Using such resources contributes to feelings of overall preparedness. But the data suggest that middle market companies might not be leveraging these professionals as much as they could or should be. 

About half of the companies undergoing a recent transition said that having access to the right advisors and advice was a significant concern during the process. Without such support, middle market leaders may be left with unanswered questions and the efficiency of the process could suffer. As one executive stated, “We use most of the internal team for legal compliance and due diligence. In hindsight it would be great to get outside due diligence support as we think there would be more best practices that can streamline the process and make it less stressful for our internal senior management.”

It's well worth mastering the nuances of business transition success. 

For most middle market businesses, the last transition was a success and the next one will likely have a (mostly) positive outcome as well. However, middle market executives can still expect to experience their fair share of challenges along the way. Learning from past transitions as well as the experiences of other middle market leaders can help companies alleviate some of the issues that can keep a good transition from being a great one. It can ensure that frequent business transitions continue to play an important role in the middle market’s historically outsized contributions to the U.S. economy.  

About the Research 
In March 2022, the National Center for the Middle Market, in partnership with Fifth Third Bank, surveyed a group of 300 middle market executives including executives from 150 companies that underwent a business transition in the past 24 months and 150 executives from companies planning a business transition in the next 24 months. The companies surveyed span all middle market industry segments and more than half of the companies are family-owned businesses. The survey sought to understand how middle market companies prepare for and executed business transitions and how the middle market business transition landscape has evolved over the past two years. 

About Fifth Third Bank
Fifth Third Bank, National Association, established in 1858, is a diversified financial services company headquartered in Cincinnati, Ohio. Fifth Third is among the largest money managers in the Midwest. It operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management.