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Untimely events

1319 Category_Articles cyber security M&A risk Tracey Eaves tragedy tragic event unexpected death untimely death untimely events Valuation ZG Team

Untimely events, like the unexpected death of a firm leader, can and do happen. Is your firm ready?

I received an email this week from one of my long-time annual valuation clients and it wasn’t good news. The company’s CAO passed away suddenly at the age of 43. It was certainly a shock and a very tragic event.

The news brought to reality how our daily personal and professional lives can change in an instant and how our companies can be impacted and transformed whether we are ready or not.

In my world of valuation, I am constantly assessing the risk levels that exist within AEC firms. The more risks that exist result in higher discount rates and, thus, a downward impact on share values.

As a firm owner, you may not be thinking about elements of risk on a daily basis, but it is creeping around every corner. Some risk events you may see coming, but some you can’t. The question is, can your firm successfully deal with an unforeseen event that could impact your operations?

Two drivers come to mind that could create an immediate issue for any firm:

  1. The death of a firm leader/executive. In certain instances, such as a prolonged illness, shareholders and firms may have some time to prepare for the loss of a person in a leadership or executive role. In other cases, there is no warning, such as the email notification I received this week. As a firm owner, have you ever given thought as to how the company would be impacted by a sudden passing and have you put any plans in place to help mitigate some of that impact? It could be simple things such as letting someone know how to access your computer. In single owner firms, do you have an additional signatory on your bank account to be able to access funds to make payroll? In larger firms, the impact might not be felt as hard, depending upon a person’s role, but what would happen if the company president was suddenly no longer around? We recently had an M&A client that was in the middle of selling their firm when one of the owners suddenly passed and it has certainly been challenging for the remaining partner to pick up the pieces. I still run across firms (mostly on the smaller side) that operate without life insurance on the shareholders. In my view, this is one of the easiest things you can do to help mitigate some risk and avoid putting financial pressure on the firm when buying shares from the deceased’s estate.
  2. Cyber security. This is an interesting topic from the perspective of risk. I think we all acknowledge and take precautions with our security, but have you ever given thought to how you would deal with a hacking event that resulted in your data being held ransom? If you think it can’t happen to you, think again. I attended a seminar on this issue a few months back. The threat is real and it can have a devastating impact if it happens. Talking with your IT people about how to best mitigate this risk is worth the investment of time.

Tracey Eaves, MBA, CBA, CVA, BCA, CMEA, is a member of the valuation advisory services team at Zweig Group. She has been valuing privately held company interests for more than 19 years. Contact Tracey at teaves@zweiggroup.com or directly at 505.258.8821



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