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Howard Kennedy finds average windfall for business owners peaked in the pandemic to £2.5m – and most are looking to their next venture

 

Analysis by London law firm, Howard Kennedy, of data from the information platform Beauhurst, shows that the average pay-out for company founders and executives increased over the course of the pandemic. Business exits, either through a traditional sale of the business or through an initial public offering on the stock-market increased in number and value during the pandemic, increasing the wealth of business founders.

As business founders looked to capitalize on increased business valuations, activity peaked in 2020 when the average wealth from shareholdings reached £2.5m, an increase of 272% on wealth created in 2019, when the average was £677,997. Despite the worsening market conditions in 2022, in the year-to-date company founders are still increasing their paper wealth by £1.75m on average, although that figure is down 18% on 2021 when the average was £2.1m.

Metric 2019 2020 2021 2022
Average age 51 50 50 49
Average Estimated Paper Wealth (Shareholdings) 677,997 2,525,637 2,112,561 174,225,209

*Data provided by Beauhurst

Coinciding with the increase in valuations is a steep increase in the number of founders cashing in, and earlier in life. The most marked increase was in 2020 when 605 founders took their businesses to IPO or through an acquisition event, this was a 1160% increase on the year before. And the number of founders benefiting from transactions has grown steadily, with 1124 in 2021 and 537 in 2022. Interestingly, the average age of those bringing companies to market is decreasing as many more look to benefit from high valuations and healthy returns. Since 2019 the average age has fallen from 51 to 49 in 2022. 

This sizable increase in private wealth, at an increasingly younger age, also means that there are many considerations for those either cashing out or benefiting from increases in paper wealth. Liz Palmer, Partner and Head of the Private Wealth team at London law firm Howard Kennedy has seen that entrepreneurs who realize significant wealth at a relatively early in life are usually looking for their next venture and the plans for their wealth can be very different from the traditional family business owner.

She said, “We are seeing more serial entrepreneurs who are less generational in the development of their businesses and less emotionally driven in their decision making. They are not creating family businesses to hand onto the next generation. This in turn affects the type of succession planning they are interested in. Creating a family investment company post exit can be more attractive than the traditional family trust for a variety of tax and succession related reasons.”

Liz Palmer also notes that taking care to protect wealth from divorce is increasingly important for young entrepreneurs, she said, “Significantly more people divorce in theirs 50s than in their 60s, which means the earlier you cash in, the greater the risk of that cash being dissipated by divorce.  Planning around this is much more important for your younger entrepreneurs. A carefully thought out pre-nuptial or post nuptial agreement can make a significant difference. It can be possible to differentiate between business and non-business assets to ensure that a relationship break down does not derail commercial success.”