BIZ-MANUFACTURING-FAMILY-1-TB

Terry Iverson, president and CEO of Iverson & Co., is the third generation owner of the machine tools sales and service company his grandfather founded 88 years ago in Des Plaines, Ill. Iverson is at a crossroads, as he begins to think about retirement, and keeping the company in the family, but his children are not interested in running it.

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, Ill., 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.

Potential crisis

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.”

Finding replacements

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.

The other partners include World Business Chicago, the city’s public-private economic growth agency; Local Initiatives Support Corp., a community development organization that will play a leading role in financing the acquisitions; the Illinois state treasurer, whose banking relationships can facilitate financing; the Safer Foundation, a nonprofit that helps formerly incarcerated people prepare for the workforce and can identify and assist interested entrepreneurs; and the Cook County Bureau of Economic Development.

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.

Diversifying owners

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.

Among the interested potential buyers is the Rev. Anthony Haynes, an associate minister at The River Jordan Ministries on Chicago’s southeast side. Haynes, who has experience working in marketing for a manufacturing firm, said he wants to buy a small nuts, bolts and screws company, both because he thinks there is a market for the products and as a “service to the community” to maintain good-paying jobs.

“It’s a way to build the middle class,” said Haynes, chairman of a group called Ministers for Manufacturing that promotes industry training for youth. “We see this as something that’s really viable to the community to improve the quality of life.”

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, who lives in Chicago’s Portage Park neighborhood. “This is a wealth building tool for my family and generations after me, and an opportunity to employ people and build economies.”

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.

Finding funds

Funding for the acquisitions will include traditional bank financing and equity from the new owners as well as seller financing. There also will be a subordinated debt fund to attract money from social impact investors willing to take a higher risk, Swinney said.

State Treasurer Michael Frerichs plans to establish a program that will help banks offer low-interest loans for the acquisitions, similar to a program the state has for farmers.

“If we help more manufacturing businesses stay and operate in Illinois, that’s another benefit for our (state) dollars,” Frerichs said.

The Ownership Conversion Project, which is in the process of getting nonprofit designation, has so far raised more than $300,000 from the Chicago Community Trust, Local Initiatives Support Corp. and the county, and is starting a search for a managing director, Swinney said. It hopes to launch by early summer and arrange 30 acquisitions in the first five years, he said.

Manufacturing mentor

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. 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.

It isn’t just family-owned firms grappling with an uncertain future.

Eric Fox, 67, started planning his exit from Irmko Tool Works in Bensenville several years before he intended to retire at 70, as he didn’t have a clear successor for the stainless steel precision parts company he bought 12 years ago.

Neither of his two daughters — one a doctor, another a stay-at-home mom — was interested in taking over. Nor were his business partner’s kids. Employees, including 30 skilled machinists, didn’t have the capital to acquire the company, founded nearly 50 years ago.

Fox didn’t want to pay a broker to find a buyer, so he and his partner approached two local manufacturers who they thought might be interested in expanding. Within months one of the deals was finalized — a lesson, Fox said, to take advantage of a good selling environment.

“If you don’t have family the next best (thing) is knowing others in the industry,” said Fox, who sold Irmko to Ace Metal Crafts, also in Bensenville, on Nov. 1. “By knowing the industry we avoided a business broker, which saved money and I think made the negotiation easier as there was no third party translating the conversation.”

For companies without those connections, selling and buying can be difficult. There aren’t many places to go for impartial information about the viability of a business, said Colin Cosgrove, president of Chicago-based Laystrom Manufacturing, which makes sheet metal fabrications and component parts for industrial equipment.

Cosgrove, who is interested in buying firms, said the Ownership Conversion Project will be helpful because it will bring him prequalified companies and give sellers honest assessments about their exit options.

“The people across the table aren’t looking at him or her with dollar signs,” Cosgrove said. “It’s someone who is saying, ‘How can I support this owner in transition.’”

Cosgrove, 44, started his manufacturing career as an entry-level engineer at a South Side factory 20 years ago, and worked his way up to helming Laystrom, which was founded in 1951 and has 60 employees. As companies cast about for new leaders, it’s a path he wishes more young people would consider.

“I think that opportunity still exists in manufacturing,” he said. “I don’t think we as manufacturers have done a good job at spreading that message across society.”

Copyright 2019 Tribune Content Agency.