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, 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.
“This is a crisis for the manufacturing sector,” said Swinney, whose group advocates for advanced manufacturing as a stabilizing force in communities. “This whole sector of the economy is left up to the whims and the contradictions inside individual families.”
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.
A priority of the initiative will be to prepare manufacturing workers to take over the business once the boss retires, as they have industry expertise and a stake in seeing it succeed. A manager or superintendent could be groomed for ownership, or a group of employees could go in on it together, Swinney said.
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. The early start is important because it takes time to prepare workers to become owners, including securing capital.
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. The program also plans to do outreach to black, Latino and women entrepreneurs to interest them in the acquisitions.
DeJuan Lever, 36, is excited about the support the program will offer as he pursues his dream to own an industrial manufacturing company. Lever, who works in sales and marketing at a small manufacturing company in Chicago, said his aspiration is unique among his friends, who are more focused on climbing the corporate ladder.
A native of Michigan, Lever was raised in the industry: his father was a human resources executive at General Motors and his mother toolmaker for Delphi Automotive Systems. He hopes the Ownership Conversion Project will help him secure financing and complete the due diligence to ensure he is making a smart investment.
“The key for wealth generation is ownership,” said Lever. “This is a wealth building tool for my family and generations after me, and an opportunity to employ people and build economies.”
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.
Iverson, whose grandfather founded the machine tools firm in Des Plaines, has made it a priority to encourage young people to consider manufacturing careers. He launched a nonprofit, Champion Now, to change perceptions about the industry, and wrote a book about his efforts. Still, his own three children, some of whom worked for a time at his company, have opted for white-collar jobs: one in marketing for an insurance company, another in financial services, another doing web development for a venture capital firm.
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.