Corporate Finance in Atlantic Canada

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

Archive for June 2014

Your SME should have an advisory board

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http://www.bdc.ca/EN/Documents/analysis_research/bdc_study_advisory_boards.PDF

Earlier this year, BDC released the above study on the use of advisory boards in small & medium-size enterprises (SMEs).

Unlike a board of directors, an advisory board has no decision-making powers and no legal liability towards the company.  An advisory board is an informal way for entrepreneurs to access some of the external advice that an external board of directors brings, but is better suited to SMEs.

One of the research points in the BDC paper says that for those SMEs who implemented an advisory board, the next three years sales growth was 67% (about three times the growth of those without an advisory board).

A very compelling stat that should convince entrepreneurs of the benefits of an external advisory board.

Written by Dan Jennings

June 18, 2014 at 9:53 am

Posted in CF Musings

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Timing the market when you sell your business

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http://www.sellabilityadvisor.com/blog/is-now-really-the-%E2%80%9Cperfect%E2%80%9D-time-to-sell-a-business

An interesting discussion on John Warrilow’s blog about whether now is the time to sell your private business.  One of John’s points is if you sell your business because you think market multiples have peaked, where are you going to invest the proceeds … in a stock market that may have also peaked?

At the end of his post, John touches on a point we are regularly discussing with our clients.  Sell your business when you’re ready to sell for non-financial reasons, and we’ll get you the market price at that time.  However, the challenge for small business owners is the M&A marketplace for many industries does not have large strategic buyers who can pay higher price premiums for transactions in their industry (see my earlier posts on this topic).  That means for many SME owners, it makes more financial sense to keep the business for 4-5 years, take the profits out, and then sell the business … because non-strategic buyers can’t afford to pay the higher multiples of strategic industry buyers.  As long as the owner still has the drive, energy and enthusiasm to focus on the business for a few more years, this strategy often makes most financial sense.

Written by Dan Jennings

June 14, 2014 at 4:03 pm

Headspace deal

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http://thechronicleherald.ca/business/1214106-entrevestor-headspace-buy-has-domino-effect

New Glasgow, NS’s Jim Fitt has acquired Halifax-based Headspace Design, a web design business.  Fitt also owns Velsoft, a provider of e-learning courseware around the world, based in New Glasgow.

Written by Dan Jennings

June 12, 2014 at 9:54 am

Posted in Announced Transactions

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Another exit for a local tech startup

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http://www.newpace.ca/NewNet-Acquires-NewPace

Bedford, NS-based NewPace Technology has been acquired by NewNet Communications, part of the NewNet Group based in Illinois (which is in turn owned by Skyview Capital of Los Angeles).  NewPace provides messaging products for the telecom industry.

This is another exit for the local tech startup industry, which should help continue to grow the startup cluster throughout Atlantic, in that successful exits allow investors and entrepreneurs to put capital into other startups.

Written by Dan Jennings

June 10, 2014 at 8:29 am

Plumbing deal

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Allan Ferguson has acquired Halifax’s Ace Plumbing from Eric Moulton.  The business is focused on new construction plumbing throughout the Halifax area.

A former stockbroker (and an engineer), Allan has been searching for a business to buy for over 3 years, while the vendor had started to consider the need for a succession plan.  The parties were put together by the company’s existing accountants.

While this transaction has not been announced via a press release, the above was disclosed by the purchaser with his express permission.

Written by Dan Jennings

June 9, 2014 at 9:59 am

US small business transaction data

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Business Valuation Resources (BVR), a Portland, Oregon-based valuation information site, collects transaction data, both on a no-names basis from business brokers as well as those deals disclosed publicly by public companies.  This propietary site collects data on various different metrics in these transactions, such as the commonly quoted multiple of EBITDA.

BVR recently published some summary tables of their data, and it’s the first time I recall seeing them separate the transactions into those with private company buyers and those with public company buyers.  If you’ve read this blog before, you know that strategic industry buyers (often public companies) can afford to pay higher multiples/prices than local financial buyers (although sometimes such buyers won’t do so).  This is because such buyers often have synergies from acquiring a business and combining it with their own, the higher cash flow from which allows such buyers to potentially pay a much higher price than a buyer who doesn’t have synergies.  (See my previous posts on this blog.)

BVR is reporting that for all of their 2013 transactions, there is clear evidence that size matters.  For businesses that sold for less than $1mil (all industries), the enterprise value (EV, or business value before debt) to EBITDA multiple averaged 2.3x.  For those deals greater than $5mil, the EV/EBITDA multiple averaged 4.5x.  Remember that these statistics exclude public company buyers, meaning that the high-multiple strategic/synergistic transactions are excluded.  Also remember that this data is almost all US, and there can (sometimes) be large differences between US and Canada (for example, most American small business deals are for assets not shares, as the capital gains tax exemption is a uniquely Canadian thing).  In additon, some of the data is for very small businesses, such as one-location convenience stores and restaurants.  Finally, the above are averages across all industries so there can be wide variations in the individual transaction data.

Nevertheless, the above is further corroboration of our knowledge of the M&A market, particularly when there aren’t strategic industry buyers.

Written by Dan Jennings

June 6, 2014 at 9:26 am

Cloud services IT deal

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https://www.clouda.ca/blog/press-releases/

Halifax-based Cloud A Computing has announced it is merging with Saint John-based Cirrus9 to form an IT infrastructure and cloud services provider in NB, NS & AB.

Written by Dan Jennings

June 5, 2014 at 5:35 pm

Posted in Announced Transactions

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