Corporate Finance in Atlantic Canada

Commentary on corporate finance issues for small- & mid-market private companies in Atlantic Canada

Selling your small business during the pandemic

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https://www.cnbc.com/2020/05/14/how-to-sell-your-business-and-retire-during-coronavirus-pandemic.html

At the link above is an interesting CNBC op-ed about selling your small business during the coronavirus pandemic.  While the statistics quoted are US, there are strong similarities with the Canadian small business market.  For example, while the average small business owner is 60 years, we believe that is higher in Atlantic Canada due to the demographics in our region (see my earlier posts about the last census).

“Many business owners who want to cash out and retire are worried they won’t be able to do that for years because of Covid-19. Nothing could be further from the truth. Investors with capital are always looking for opportunity, no matter what is happening in the market.”

There are certainly plenty of buyers in Atlantic, and they have access to debt & equity capital.  While many paused at the outset, we’ve seen transactions close in Atlantic Canada during this pandemic.  We also agree with the article that there will be many business owners who will want to sell once the economy re-opens.  There is some expectation of slightly lower valuations (due to the uncertainty of the economy), but we’ve seen some evidence that any declines will not approach that of the public market declines in March (where most industry multiples were down at least 30%, although significantly improved since then).

Some good points in this article about exit planning steps to take coming out of the pandemic:

  1. Understand your goals (such as desire for retirement) and what they mean for your business.
  2. Clean up your financials (identify normalizing adjustments, etc).
  3. Mitigate the risk factors that could prevent a sale (such as resolving outstanding litigation that could mean a buyer won’t acquire shares).
  4. “Battle-test” your operations (prove that your staff and management team can run the business without you there every day — this will improve the value of your small business).

One of the themes of this blog — there are plenty of buyers and capital to fund them — still holds true as we come out of this lockdown due to the covid-19 pandemic.

Written by Dan Jennings

June 2, 2020 at 10:22 am

Financing steps for business in this crisis

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Here are some financing action steps we recommend for small and medium size businesses (SMEs) during this economic crisis:

  1. Proactively talk to your banker about the near-term impacts on your cash flow.  To be clear, there is capital in the system to lend to SMEs (particularly with BDC and EDC, given the govt announcements), but no banker wants to hear ‘silence’ from you the SME business owner.  Start the conversation now!
  2. If you don’t have one, immediately start on a weekly cash flow forecast, particularly around working capital (receivables versus payables).  You (and your banker) need visibility as to short term cash flow needs, including when (and how much) of an increase in your operating line you may need.
  3. Talk to your insurance broker (and an accountant experienced in this topic) about your business interruption (BI) insurance coverage.  BI is much more complex than compensating you for lost sales, so get advice on what is covered (and when an advance could be possible).
  4. Explore non-borrowing cash flow resources.  For example, the federal govt just announced that you can immediately reduce your payroll remittances for the 10% “wage subsidy” if you pay employees during a shutdown (subject to limits per employee and per business).  Also, you can now delay income tax payments and instalments until September (without interest or penalty).

Be proactive and your business will survive.  Be safe.

Written by Dan Jennings

March 19, 2020 at 11:27 am

Posted in CF Musings

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Kefi Travel acquires Canadvac Travel

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https://huddle.today/kefi-travel-acquires-canadvac-travel-services/

NB news service Huddle published a news release today about Saint John, NB’s Kefi Travel acquiring Chester, NS-based Canadvac Travel.

Canadvac is a receptive (i.e. inbound) tour operator focused on European visitors to Canada, while Kefi is a personalized/customized travel operator. 

Written by Dan Jennings

March 8, 2020 at 7:10 pm

Canada’s Wave of Business Transition

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Readers of my blog (and LinkedIn posts and if you’ve attended one of my Bidding War sessions) know that while there have been plenty of small & medium-size business sales in recent years, there are many more to come.  It is a matter of demographics … 20% of Atlantic Canada’s population is already over the age of 65, and most of the children of those that are business owners don’t want the business (in my experience) … so, the reality is that many business owners are going to sell, even if some have been putting off the decision.

Our firm BDO recently partnered with FEI Canada for a survey of business owners about their succession plans.  While the findings may not be new to some of us, they are further corroboration of the above demographic reality.

  • 54% are expecting to sell within 2 years;
  • 19% are expecting to sell within 3-5 years;
  • 83% have less than $100mil in annual revenue.

https://www.feicanada.org/ajaxfilemanager/uploaded/SELLING_BUS_SURVEY_EN%20(002).pdf

Written by Dan Jennings

December 24, 2019 at 11:21 am

Acadian Maple sold

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https://www.thechronicleherald.ca/business/local-business/authentic-seacoast-acquires-acadian-maple-345788/

The Chronicle Herald is reporting that Authentic Seacoast has acquired Acadian Maple Products from the Allaway family.

Acadian Maple is a Halifax-based supplier of maple products, including its popular-with-bus-tours Tantallon retail location.

Authentic Seacoast is a Guysborough-based collection of businesses owned by Glynn Williams.  Williams is well reported as the Toronto businessman who fell in love with Guysborough and has been active in building food & beverage businesses in the town. http://authenticseacoast.com/meet-glynn/

Written by Dan Jennings

August 28, 2019 at 12:05 pm

Different types of buyers

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In general, there are 3 groups/types of buyers for mid-market private businesses:

  1. Strategic.  Such buyers are often called industry buyers because they are typically in the same (or related) industry as the target.  These buyers tend to be larger companies seeking to consolidate your business with their existing operation, and so, they often have access to synergies from combining the two businesses.  These synergies can mean that such buyers can afford to pay more than the below types of buyers (i.e. they can pay a strategic premium over/above standalone financial value).  These buyers are often an option for mid-market businesses and less so for small businesses, but that can depend on the industry.
  2. Financial.  Financial buyers are aplenty in the Atlantic marketplace, given the prevalence of debt and equity capital.  These buyers have access to capital and either financial or management expertise, but aren’t currently operating in the industry of the target (and therefore don’t have synergies to allow them to pay the above premium price).  Such buyers range from formal private equity funds (such as the Sobeys/McCain-founded SeaFort Capital), to informal groups of owners seeking to invest in businesses and their management teams, to individuals who have a dream of being an owner (and have never acquired a business before).  In today’s market, there are many more financial buyers than business opportunities, and so these buyers/investors are looking in almost all industries and sizes in Atlantic.
  3. Management.  Existing employee or senior management groups have always been an option to acquire your business.  Historically, the challenge was often that such buyers didn’t have capital, and so often required significant vendor financing assistance.  In recent years, that is no longer the case, due to the availability of capital (both debt and equity) to assist management teams in acquiring the businesses they work for.  While management buyers can’t do the above strategic price, they can pay a fair price and therefore are a credible alternative.

Stay tuned for more blog entries on each type of buyer.

Written by Dan Jennings

June 12, 2019 at 9:23 am

Cabco Communications sold

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https://www.thechronicleherald.ca/business/cabco-communications-sold-to-local-investors-307611/

The Chronicle Herald is reporting that Dartmouth, NS-based Cabco Communications Group has been sold to a group of local investors, led by Jim Mills (CEO of Halifax-based Office Interiors).  Cabco is a cabling & technology equipment sales, installation and service provider.

This is another example of the type of financial buyer I have spoken/written about many times.  In many sectors, private equity (or informal private equity in the form of a group of investors, in this case) has become a strong & credible alternative to ‘traditional’ industry/strategic acquirers.

Congratulations to majority owner Craig Meredith on his succession and exit!

Written by Dan Jennings

May 2, 2019 at 8:42 am

More insurance broker consolidation

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https://www.canadianunderwriter.ca/mergers-and-aqcuisitions/archway-insurance-moves-into-saint-john-with-acquisition-1004161431/

Various media have reported that Amherst, NS-based Archway Insurance has acquired Saint John, NB’s Hall & Fairweather Insurance.

This transaction forms part of the long list of consolidation in the P&C insurance broker sector, which has been written about here many times.

Written by Dan Jennings

April 28, 2019 at 2:54 pm

PEI’s CMP Acquired

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https://blog.cmpequipment.com/blog/fps-to-acquire-cmp

PEI’s Charlottetown Metal Products (CMP) is being acquired by BC-based Food Process Solutions (FPS).

FPS provides freezing and cooling equipment, while CMP is a designer/builder of custom food processing equipment.  According to the news release, FPS has big growth plans for CMP.

 

Written by Dan Jennings

February 12, 2019 at 8:57 am

Target Mazda acquired

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https://www.ngnews.ca/business/new-glasgow-mazda-dealership-asks-communitys-help-with-rename-255627/

The New Glasgow News is reporting that the NB-based Smith family has acquired New Glasgow, NS’s Target Mazda car dealership.

The Smith family also own Mazda dealerships in Dieppe, NB and Truro, NS, while Target Mazda claims to be the oldest Mazda dealership in Atlantic Canada.

This is another in a long series of transactions in the consolidating auto dealer industry, which has been commented on in this blog many times.

Written by Dan Jennings

December 7, 2018 at 1:20 pm