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Jill gateman succession planning
By Jill Gateman
• Aug 4, 2025
Co-Head of U.S. Commercial Banking
TD Bank, AMCB

Across North America, privately held, mid-market companies — those with $250 million to $2 billion in annual revenue — are undergoing or facing generational ownership changes. For these firms, the decisions they need to make could not be more strategic nor the stakes of those decisions higher.

With retirement calling them, owners who either founded their companies or took over management from their forebears must now determine where their businesses go next: Who will lead their firms? If not their adult children or younger relatives, is it time to cash out? If the latter, what is the business worth and how can they get the best price? And, after selling, how do they responsibly manage their new-found liquidity?

No more “either-or”

Well-informed business succession planning can help answer these questions and do so much more. One of the biggest misconceptions is that the process is binary — owners can either pass their firms down to the next generation or sell them for as much as they can get. But such thinking overlooks the range of other options available today. To find the best opportunity requires a careful evaluation of a company’s size, goals, and risk tolerance, as well as the external contexts of its particular industry and the economy at large. Those latter contexts include not only conditions today but also trends that may change those conditions in the future.

After all, context matters. Thorough succession planning must account for factors outside a company’s control, such as interest rates. While capital costs affect every business and industry, they affect some more than others. Or consider energy costs that can have varied impacts depending on the industry. Some firms use lots of energy in manufacturing goods while others, such as logistics and transportation industries, use lots of fuel to transport those goods. Also, commodity prices are always changing, which can impact manufacturing feedstocks that then determine the costs of goods sold and bottom-line profits.

Maximize valuation via good succession planning

Another misconception about succession planning is that it focuses on finding the best exit strategy. While that’s important, an underlying purpose should be to strengthen the business, especially its capital structure, that can elevate its capital returns and thereby maximize enterprise value.

This requires a frank assessment of both business liabilities and weaknesses so owners can take the necessary mitigating steps that will increase competitive market positioning and EBITDA (earnings before interest, taxes, depreciation, and amortization). Even a modest EBITDA increase can boost business valuation enough to open the door to a much wider range of strategic investors and enable more aggressive pricing of ownership shares.

Seek trusted advice from an experienced source

For all these reasons, a trusted advisor, such as an investment banking firm experienced in a company’s industry and in developing and executing business succession plans for companies in that industry, can help an owner determine the optimal succession path business owners should take.

For example, perhaps a partial liquidation might be best through which an owner can recapitalize their firm through a leveraged dividend that reallocates some of the ownership to outside investors. Or, maybe a bolt-on acquisition of a key supplier, such as a packager for a food and beverage manufacturer, could enhance the company’s valuation many times over the acquisition cost.

Of course, other liquidation options could include implementing an employee stock ownership plan (ESOP); selling to key personnel through a management buyout (MBO); selling to a private equity firm through a leveraged buyout (LBO); or selling to a larger company interested in expanding its capabilities, markets, or both. For these third-party options, good investment bankers should be able to package their client’s opportunity truthfully and attractively, then bring well-qualified prospective buyers to the table.

Do not delay, start now

Despite the benefits that good succession planning can provide a business, many firms often delay or even avoid it, due to their misperception that the process is difficult. It does not have to be. It can and should be a highly strategic and creative endeavor that ensures future success and growth in the business.

But other impediments can also stand in the way. For example, several different suitors, whether potential buyers, brokers, or investment bankers, can be knocking on their doors, so it can be hard to know where to start in evaluating them all. Another one is the emotion involved in thinking about departing a business that owners have invested years of long days, worried through its ups and downs, and, for many, developed genuine concerns for employees who may be considered extended family.

Review annually or when milestone events occur

Nonetheless, all companies should have a business succession plan in place and review it annually — and whenever a major company event occurs, such as a plant opening, an acquisition, or management changes.

In every review, owners and their boards should evaluate their capital structure regardless of whether they want to sell or not. They should be able to answer such questions as: What is their debt capacity and does their liquidity meet its needs? Can they absorb any more capital in order to make an acquisition? Is it time to look for an investor or investors?

If they want to sell, then they need to consider whether their interests and potentially those of their employees would be best served by a strategic buyer or a financial buyer. Each has different incentives that will typically lead to markedly different futures for their companies’ operations and organizations. Either way, the tax implications of a sale for owners and the liquidation of their interests also must be addressed.

At TD Bank, we advise our mid-market clients that it is important to start looking at their capital structures and shareholder goals, which are core pillars of succession planning, years ahead of when they may want to sell their businesses.

This way, we can have methodical and thoughtful discussions of their options and work with them to use all the tools we have to maximize their business valuations. Not only can this help them command the very best price when they are ready to sell, it also can potentially improve their business performance and profitability before they do so. n

For more information on TD, visit tdbank.com/CommercialBanking.

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