Terry Iverson, president and CEO of the manufacturing firm his grandfather founded 88 years ago, loses sleep worrying what will come of the business once he decides to retire.
His kids aren’t interested in taking the reins at Iverson & Co. in Des Plaines, Illinois, which sells and services machine tools. His vice president had been groomed for ownership but left for another opportunity.
Iverson expects he will have to merge or sell, but to whom? And will the buyer take good care of his customers and his family’s legacy?
“It’s something I think about every day,” Iverson, 59, said.
His succession concerns are shared by many in the Chicago area’s manufacturing industry, which anticipates a barrage of baby boomer retirements among company owners who often don’t know who will take over their businesses once they hang up their gloves.
Some industry leaders worry that companies without succession plans might close, or get purchased by private equity firms that move them out of the region or pick them apart — consequential for the local economy, given the hundreds of thousands of workers that Illinois’ small and midsize manufacturing firms employ and the billions of dollars they contribute to the state’s GDP.
In a new report, the Great Cities Institute at the University of Illinois at Chicago surveyed the 363 family-owned manufacturing companies it identified in Chicago’s six collar counties with between 20 and 250 workers — a group that collectively employs more than 22,000 people — to gauge how well they were planning for the future.
About three-quarters of respondents had owners over the age of 55, and of those, half had no plans for succession. Nearly 62 percent had not designated a specific successor, up from 38 percent the last time a similar survey was conducted in 1989.
Though these are firms whose names are unknown to the general public, their role in the supply chain represents “the lifeblood” that drives of the success of the state’s $104 billion manufacturing industry, said Dan Swinney, executive director of Manufacturing Renaissance, a Chicago nonprofit that commissioned the survey.
To address the challenge, Manufacturing Renaissance is reviving an effort, which it first attempted in the 1980s, to match retiring manufacturers with entrepreneurs who are interested in keeping the companies local and viable.
The Ownership Conversion Project, in the process of raising money for an expected launch this year, boasts several heavy-hitting partners to help recruit companies and potential buyers as well as smooth the transition with financing help.
The Chicago Federation of Labor, for example, will be part of the “early warning system” to identify companies at risk of succession issues, as well as people who might be interested in acquiring them, using its extensive union and civic connections, said CFL President Bob Reiter.
“We don’t want to lose a generation of small business that went away for no other reason than that it was time to retire,” Reiter said.
A priority of the initiative will be to prepare manufacturing workers to take over the business, as they have industry expertise and a stake in seeing it succeed.
Companies will be identified while they are still healthy and strong, long before desperate owners start to consider offers from private equity firms that often prioritize profits over jobs or the longevity of the business, Swinney said.
One goal is to increase minority ownership in Illinois’ manufacturing sector, where 99 percent of companies are owned by whites even as many blacks and Latinos staff factory floors, according to a 2014 report from the U.S. Commerce Department’s Minority Business Development Agency.
A critical service the initiative will provide is business analysis of the companies and vetting of potential buyers to ensure a good match, Swinney said. It also will provide training and ongoing support to new owners on how to run a business, a lesson learned from his group’s prior efforts to arrange employee ownership transitions in the late 1980s and early 1990s, which met with mixed success.
Funding for the acquisitions will include traditional bank financing and equity from the new owners as well as seller financing.
Manufacturing’s succession challenge runs in parallel to a related struggle to find qualified workers.
Half of the nearly 600,000 people working in manufacturing in Illinois will have to be replaced over the next 10 to 15 years as a result of retirements, and owners regularly complain that there are not enough skilled people to take those jobs, said Mark Denzler, president and CEO of the Illinois Manufacturing Association.
“You have tens of thousands of openings, and that’s the kind of talent that could eventually own a corporation,” Denzler said.
Manufacturing fell out of favor as a career choice during an era of automation and offshoring. But now manufacturing jobs are growing, and the industry has been striving to show that it offers technologically sophisticated, well-paying careers for those who don’t want to rack up student debt pursuing four-year degrees.
Iverson, whose grandfather founded the machine tools firm in Des Plaines, has made it a priority to encourage young people to consider manufacturing careers. Still, his own three children, some of whom worked for a time at his company, have opted for white-collar jobs.
Iverson, who employs 14 people, is intent on seeing his family’s way of doing business continue even if a fourth generation isn’t at the helm. He has an informal apprenticeship program at his firm to cultivate future leaders at his company, who he hopes will ensure its sustainability either by acquiring it or running it under new ownership.
“If we mentored properly to begin with, succession planning wouldn’t be nearly as difficult because you would have a whole generation entering the workforce with leadership in mind,” Iverson said.