Corporate Finance in Atlantic Canada

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

Archive for June 2012

VistaCare deal

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http://www.thechronicleherald.ca/business/109647-telecom-acquires-av-company

Dartmouth’s VistaCare Communications has acquired Instructor Aids, also of Dartmouth.  Instructor Aids provides audiovisual and video conferencing solutions.

Written by Dan Jennings

June 22, 2012 at 6:35 pm

Posted in Announced Transactions

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The “Proprietary Deal”

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http://www.builttosell.com/blog/2012/06/14/victimized-by-the-proprietary-deal/ 

Interesting phrase (“Proprietary Deal”) raised by this blogger.  He says private equity funds (and perhaps this applies to any buyer) have a term for target companies they acquire who negotiate with them exclusively and don’t test the market through an M&A advisor.  The theory is that the vendor can do a quick and quiet deal with one buyer at a fair price, without incurring the fees of an M&A advisor.  To quote:  “When acquirers use the term ‘proprietary deal’, they are referring to buying a business directly from the owner without the hassles of a ‘greedy’ investment banker driving up the price by soliciting – or threatening to solicit — competitive bids for your company.”

But, as raised in the linked post, how do you (the vendor) really know whether that one “exclusive” buyer is paying a fair price??  This is why one of the fundamental tenets of our M&A practice is that we don’t negotiate with only one buyer at a time, and if we have to, we run a process such that the buyer doesn’t know we are only negotiating with one buyer.

Some of the reasons listed in this blog why the “proprietary deal” isn’t good for the vendor (and they are my experience as well):

You’ll get a lower price

Due diligence becomes protracted

Shrinkage (and not the George Costanza kind!)

Seller’s Remorse (because without other offers, you don’t know if you’re getting the best price available)

Out of market terms (these ‘technical’ parts of a deal — working capital, minimum equity, representations/warranties — are all areas where good legal counsel and M&A advisor will definitely help)

As I’ve posted many times before, if you are approached by someone who wants to buy your business … stop, pause and think about who else might be interested in buying your company … and get some M&A advice!

Written by Dan Jennings

June 20, 2012 at 9:53 am

Posted in CF Musings

Restoration services consolidation

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http://www.onside.ca/news-detail.php?newsID=34

St. John’s, NL-based A&R Services has sold to Onside Restoration Services, a Vancouver-based disaster clean-up and restoration services provider with 19 locations across the country, including this first acquisition in Atlantic.

Written by Dan Jennings

June 11, 2012 at 1:37 pm

Posted in Announced Transactions

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What to do when you receive an unsolicited offer to buy your business

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1.  Don’t sign a Letter of Intent (LOI) without considering the details.
Some purchasers ask for exclusivity clauses in their LOIs, i.e. you can’t negotiate with anyone else while that purchaser is completing due diligence, financing, etc.  Some purchasers use this time (when you don’t have as much negotiating leverage) to whittle down the price for things they find in due diligence.
2.  Don’t tell your employees, etc.
As an LOI is almost always non-binding, don’t start telling employees and customers … you don’t really have a deal yet, so you’ll run the risk of damaging your business before you know whether you’re truly going to sell.
3.  Get some M&A advice.
One of the fundamental tenets of our M&A practice is we don’t negotiate with only one buyer.  Not only does the ‘competitive tension’ of multiple bidders result in a better price/terms for you the seller, but it will prove to you that you’re selling for the best possible price/terms … because a good M&A advisor will bring you several qualified offers for you to compare.
It can be both flattering and exciting to receive an unsolicited offer to buy your business, but follow these simple ‘rules’ to avoid making mistakes in the process.

Written by Dan Jennings

June 11, 2012 at 12:26 pm

Posted in CF Musings

More engineering consolidation

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http://www.thechronicleherald.ca/business/105106-strum-buys-antigonish-consulting-company

Bedford, NS-based Strum Environmental has acquired 80% of HJS Consultants of Antigonish, NS.  Both firms are engineering consultants.

This is another in a long series of consolidation transactions in the engineering industry, both large and small deals.

Written by Dan Jennings

June 9, 2012 at 9:25 am

Is your shareholder agreement out-of-date?

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For those of you with multiple shareholders in your businesses, I assume (hope?) you have a shareholders agreement, sometimes called a buy-sell agreement.  Such agreements are intended to cover how the shareholders are involved in the ownership of the business, including what happens in the event of the death, disability or withdrawal of a shareholder.  Such agreements are critical when a dispute arises between shareholders … and it is then too late to document your intentions, rather than what is in the agreement!

One of the challenges I often see with these agreements is the issue of valuation.  Many agreements set a formula or specific price for the buyout of a shareholder.  The problem becomes when the shareholders agreement hasn’t been updated for years, and the valuation formula (or specific price) no longer represents the market value of the underlying business.  For example, I’ve seen plenty of shareholders agreements where the value is set as book value (i.e. shareholders’ equity on the balance sheet), and perhaps that was the intention of the parties when they founded the business.  If, however, the business has grown considerably and/or is in an industry where significant intangible value exists (customer relationships, contracts, etc), then a shareholder buyout based on book value is going to benefit one shareholder over the other.  What you as a shareholder have to decide is whether that current situation was the intention of you and your fellow shareholders in the first place.

Valuation is not the only reason to update your shareholders’ agreement, as there are others, such as changing estate plans of the principals, changes in the financial structure of the business, etc.

When’s the last time you updated your shareholders’ agreement?

Written by Dan Jennings

June 6, 2012 at 5:26 pm

Posted in CF Musings

Uplift sells

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http://www.businesswire.com/news/canadacom/20120605005602/en/Carex-Health-Brands-Acquires-Uplift-Technologies

Dartmouth, NS’s Uplift Technologies has been sold to Carex Health Brands, based near Boston, MA.  Both companies are in the home medical equipment space, with Uplift specializing in lifting seats and light therapy.  The transaction provides greater distribution for Uplift’s products across Carex’s extensive network, while providing Carex with Canadian distribution.  Sounds like a win-win!

Written by Dan Jennings

June 5, 2012 at 12:21 pm

Posted in Announced Transactions

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