Corporate Finance in Atlantic Canada

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

Posts Tagged ‘business transition

Different types of buyers

leave a comment »

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

leave a comment »

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

Target Mazda acquired

leave a comment »

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

Business succession in NL

leave a comment »

https://soundcloud.com/vocm/sept-1st-greg-london-dan-jennings-of-bdo-valuing-your

On a recent VOCM radio show in NL (hosted by BDO partner Nancy Snedden), tax colleague Greg London and I talk in-depth about the challenges of business succession in NL.  We covered a wide variety of topics, such as demographics, taxes, the buyer landscape and more.

Written by Dan Jennings

October 26, 2018 at 1:34 pm

CRA announces MBO

leave a comment »

http://thechronicleherald.ca/business/1596714-don-mills-reflects-on-40-years-with-cra-and-looming-retirement

The Chronicle Herald is reporting that Don Mills has sold Corporate Research Associates (CRA) to three members of his management team.   Halifax-based CRA is well known in the market research sector and has offices throughout Atlantic as well as Ottawa and Bermuda.

This is another example of a management buyout (MBO), where existing management acquire the business they work for.  Many entrepreneurs are surprised to know that MBOs are a viable succession/exit alternative and that’s because of the prevalence of capital in the marketplace to fund such acquisitions.  Every financial institution likes to fund MBOs and there are also plenty of private equity funds interested in backing management teams.

Written by Dan Jennings

September 13, 2018 at 8:36 am

5 Elements of a Successful Business Exit

leave a comment »

Below are five required elements for planning and executing a successful business exit.

  1. A plan based on the owners’ objectives.  Talk to your advisor about mapping out possible scenarios and options that align with your goals.  This doesn’t have to be in writing, but walk through the scenarios with an advisor.
  2. Work with an experienced team of advisors.  Accountants, M&A professionals, lawyers and investment advisors should be part of the exit planning process.
  3. A good understanding of business value.  Work with a valuator or M&A professional to understand how the market will value your business.  Do this in advance so that you can discuss any improvements that can boost the value.
  4. Hire a management team.  All other things being equal, a business with an existing management team is more valuable than one without.  Every buyer wants to know that the business can survive (and thrive) when the existing owner retires, and having an existing management team is the best way to prove this to a buyer.
  5. Time.  Allow for planning time in advance of when you want to retire/sell.  The process can take time, but especially if value improvements and/or tax strategies need to be implemented first.

According to some sources, anywhere from 67-90% of businesses listed for sale fail to get sold.  Developing an exit plan using the elements above can improve those odds.

Written by Dan Jennings

November 28, 2016 at 2:00 pm

Business Transition — Create the Choice

leave a comment »

https://www.businesstransitionsimplified.com/business-transition-create-the-choice/

Good article from BDO’s Grant Robinson on business transition.

My favourite part:

In my experience entrepreneurs should be looking at setting up their business so they have a choice to sell when they want and to whom they want. I am a believer in the philosophy that you will sell your business one day, either involuntarily or voluntarily and no matter what the trigger, you will either sell inside the business or family or to an outside private equity or strategic buyer. If you have prepared the business to be salable to the outside that enhances your ability to sell inside; if you have prepared the business to sell inside it enhances your ability to sell outside. Whatever your focus, the key is to prepare it for sale.

Written by Dan Jennings

May 19, 2015 at 3:02 pm