By Beppe Jaccarini
Succession planning is a crucial aspect of any business, yet it is often overlooked or delayed until it becomes too late. In Malta, where SMEs account for over 98% of all businesses, succession planning has become an increasingly critical issue in recent years. The importance of succession planning cannot be overstated, as it allows businesses to plan for the future and ensure their continued growth and success. In this article, we will discuss why succession planning is essential, the challenges that businesses face in Malta, and how listing on the Malta Stock Exchange (“MSE”) can be a valuable tool in navigating this process.
Succession planning involves preparing for the future by identifying and developing future leaders within a business and planning for the transition of ownership and leadership when the current owner or CEO retires, resigns, or passes away. In Malta, many SMEs are family-owned or closely held, which often leads to business owners preferring to keep control of their companies within the family. The lack of succession planning can lead to conflict and confusion when it comes to passing on the reins, contributing to the failure of the business or the loss of family wealth. In fact, studies have shown that only one-third of family-owned businesses survive the transition from the first to the second generation, and only one in ten makes it to the third generation.
The lack of succession planning can also have a broader impact on the Maltese economy. SMEs account for the majority of employment in Malta, and their failure can lead to job losses and economic instability. It is therefore essential for businesses in Malta to plan for the future and ensure the continued growth and success of their enterprises.
Once a business decides to go public, there are several potential benefits that can support succession planning efforts. These include access to a broader range of investors, greater liquidity, and increased visibility and credibility. Going public through an initial public offering (“IPO”) or issuing bonds can not only provide a liquidity event, but also an exit strategy for the current owners and thereby ensuring a smooth transition of leadership.
Access to a broader range of investors can be critical for a business that wants to ensure its longevity. By issuing shares or bonds, companies can raise funds to finance growth or pay off debt. This can provide financial resources to the new leadership team, easing the transition of leadership. Additionally, having a diverse group of shareholders can provide access to a broader range of expertise and resources, which can be valuable for the new leadership team. Therefore, by listing on the MSE, a local business can attract institutional investors, retail investors, and potential strategic partners. This can provide the necessary capital injection to support the business's growth and provide for the needs of future generations.
Furthermore, once a company is listed on the stock exchange, it benefits from greater liquidity. This can provide the ability to sell shares on the open market, making it easier to exit the business and providing more flexibility for succession planning.
Finally, being listed on the MSE can increase a business's visibility and credibility. By going public, a company is subject to more rigorous financial reporting requirements, which can help to build investor confidence. This transparent framework can be invaluable in attracting new customers, suppliers, and business partners, and ultimately supporting the company's longevity and growth.
It is important to note that listing on the Malta Stock Exchange is not a one-size-fits-all solution for succession planning. Each company has its unique circumstances, and professional advice should be sought to identify the best options for your business. By exploring the possibility of going public, businesses can unlock potential advantages and achieve long-term growth and success.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.