Sticking to the business you know is the key to corporate longevity

Research indicates there is only a one in 1,000 chance of a company surviving for 80 years, while two-thirds of firms that cease trading will be under 10 years old.

Company deaths are an inevitable result of competition and technical change. So it would appear that business organisational capital (i.e. their ideas and technologies) has a specific vintage. A total of 279,000 businesses closed in 2009, the highest number since the current statistics began in 2000, according to data published by the Office of National Statistics.

This death rate equates to 11.9% of companies ceasing to trade, a level significantly higher than that for men. Even in the best year last decade, 9.4% of firms died, which indicates that the recession was not a sole factor in business demise.

A review of the Statistical Bulletin for Wales’ Business Demography, published at the end of last January revealed that:

In 2009 enterprise births dropped to approximately 8,500, while deaths peaked at 10,200 – the highest level since the data was published in 2000. This trend of business deaths outnumbering business births was UK wide;

the death rate increased between 2008 and 2009 by 16.6% as it did for the UK as a whole, at a higher rate of 26.2%; and

Wales led the largest regional fall in the UK between 2008 and 2009 of VAT/PAYE registered enterprises, while all other UK countries and English regions had increases.

In terms of sectors the highest birth rate in Wales was in the mining, quarrying and utilities sector which was in line with the UK results.

However, Wales had lower birth rates than the UK in all sectors except the manufacturing sector, education and the arts, recreation and other services sectors. Its lowest birth rate was the health sector which also had the lowest death rate.

Wales had higher death rates than the rest of the UK in the construction and finance and insurance sectors. In 2009, the highest death rate was in finance and insurance in Wales while in the UK most deaths occurred in business support services.

Overall, the survival rate in Wales of enterprises with a birth date of 2004 and still active five years later was just above the UK average at 47.4%. The lowest survival rate was in London and the highest was in Northern Ireland (52.9%).

Statistically, young companies are more likely to close than older ones. Conversely, extremely old firms tend to be family owned, for whom survival and traditions matter more than profit maximisation.

Interestingly, recent research has revealed that since 1907, out of the top 100 companies at that time, only three are stock market companies today: WH Smith, GKN and Prudential.

These companies embody and develop the technologies or ideas that they did when they were new and must continuously adapt their business models and competitive strategies to survive. WH Smith has always sold stationery, Prudential always insurance.

An in-house review of Welsh based incorporated organisations still in existence after more than 100 years reveals an extensive list of membership organisations and property or other investment companies.

It appears that the pursuit of financial efficiency on its own is not conducive to longevity. This might explain why firms do not live as long as other organisations, such as a university or an army regiment.

Among the better known Welsh corporates over 100 years old are SA Brain & Co, A McClay, Media Wales (formerly Western Mail and Echo), Principality Building Society and until recently Hawtin.

Some firms that try to diversify rather than carry on in the business they began in may find the transformation is destructive. Remember the GEC and Marconi saga?

Among the Welsh centurions, SA Brain is still in brewing, McClay is still in printing and Media Wales in publishing, while Hawtin which has diversified a number of times over its corporate existence, is a recent casualty. Exceptions to these patterns are rare.

Frank Holmes is a founder partner of Gambit Corporate Finance, a specialist in mergers and acquisitions, with offices in Cardiff and Birmingham. The firm has extensive experience in succession and enterprise planning.

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