Locally owned and operated businesses are a unique asset to West Michigan’s economy, but that dynamic is changing as more owners opt to sell to private equity firms that have increasingly targeted the region for deals.
Many locally operated businesses in the region have 100 or fewer employees, yet they still provide 65 percent of jobs and an estimated $25.8 billion in output in the region, according to The Right Place Inc. The recent “erosion” of local ownership is an issue the organization plans to focus on in the coming years, according to The Right Place President and CEO Birgit Klohs.
“We have become a hotbed for the PE industry,” Klohs said during the organization’s annual economic outlook last month. “It changes the makeup of our community to some degree.”
Private equity firms have capital to spend, and they’re attracted to the region by fiscally conservative, well-managed companies in their target markets, especially in manufacturing. This shift in ownership from local individuals to private equity funds has the potential to affect the longevity of the company within the region and changes conversations surrounding retention and expansion, according to Klohs. Next month when The Right Place plans to introduce a new three-year strategic plan, it expects to include preserving local ownership as one of its main pillars.
“I have no doubt that if we identify a problem in this community, we will figure out how to tackle it, because that is what we do,” Klohs said, adding that the plan will take a “serious look” at how to stimulate local buyers.
One of the main drivers of the issue is that many of the local owners who are selling their businesses are Baby Boomers who do not have a succession plan in place but are ready to retire.
“You can’t keep someone from selling a business if there is nobody to run it,” Klohs said.
That’s resulted in a rush of West Michigan companies hitting the market at a time when private equity firms from large metro areas are starting to look down market, according to Eric Seifert, principal of Muskegon-based Left Coast Capital Resources LLC.
“The PE groups have raised a lot of money in the last several years and now they need to deploy it, so they’re really beating the bush to find deals,” Seifert told MiBiz. READ MORE