Corporate Finance in Atlantic Canada

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

Posts Tagged ‘exit planning

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

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

Business succession in NL

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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

5 Elements of a Successful Business Exit

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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

Is now a good time to sell your business?

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As M&A advisors, we get asked this question a lot … “is now a good time to sell my business?”

The answer is yes … for example, the last two businesses we’ve sold in NS yielded an average of 9 offers each (signs of a very strong M&A market!).

But the timing still has to work for you and your family.  If you’re 50 years of age selling a small business, the market will typically not yield a high enough price to warrant you giving up the stream of profits from the business (unless you have other income-generating things you want to do after selling).  Of course, that assumes you don’t have health or other issues that could prevent you from operating the business for the next 10 years.

If, however, you are closer to retirement age and want to crystallize the value in your business, the market is very strong right now.  For quality small and mid-market businesses, we estimate there are at least 10 buyers for every seller.  That means a general rise in pricing, but also an improvement in terms (such as lower amounts of vendor financing).

Written by Dan Jennings

July 20, 2015 at 3:54 pm

Business Transition — Create the Choice

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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

10 Tips to Shorten the Life of a Family Business

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http://everyfamiliesbusiness.com/2012/09/06/my-top-10-tips-to-shorten-the-life-of-your-family-business/

I like this light-hearted blog post on what NOT to do with your family business.  Dr. Tom Deans is a well-known author & speaker on family business and wealth.  Check it out, but I like these in particular:

Tip #1
Invite all your children into your business as soon as they’re able to walk so that you can enjoy as much of their free labor as possible.

Tip #6
Always tell your non-family employees that there are two sets of policies and procedures – one for family and one for everyone else. This way, when your children show up for work at 11:00 a.m. (when they show up at all) and leave at 2:00 p.m., everyone will know they are following the rules and earning their bonuses.

Note that BDO in Halifax is hosting a session with Tom Deans on January 8 calling Willing Wisdom, register below:

http://www.bdo.ca/en/about/events/pages/Dr-Tom-Deans-and-a-panel-of-experts-01-08-2015.aspx

Written by Dan Jennings

November 21, 2014 at 4:57 pm

3 ideas for business owners if you want to retire on your own terms

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http://www.theglobeandmail.com/report-on-business/small-business/sb-managing/succession-planning/own-a-business-three-ideas-to-help-you-retire-on-your-own-terms/article19913718/

An interesting Globe article on some suggestions for planning for your exit from your company (“on your own terms”).

This opening statement is particularly true in my experience:

“If you’re like most small business owners, a significant portion of your retirement capital is tied up in a single asset: your business.”

Many of the items in this Globe article are common themes in this blog.

Written by Dan Jennings

August 12, 2014 at 10:43 am

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

What to do when the kids don’t want the company

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http://www.theglobeandmail.com/report-on-business/small-business/sb-money/valuation/what-to-do-when-the-kids-dont-want-the-company/article14980848/#dashboard/follows/

Good article from the Globe and Mail on family business succession, highlighting the many exit options available to business owners today.

The below issue is one that I see a lot:

“By accessing more potential buyers from outside the usual list of competitors or known buyers, family business owners can be certain they are receiving fair value and are more likely to get a cash deal.  In comparison, a retirement income stream that relies on the fortunes of the family business managed by the next generation carries more risk.”

Written by Dan Jennings

November 16, 2013 at 11:14 am