Corporate Finance in Atlantic Canada

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

Posts Tagged ‘selling a business

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

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

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

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

Edible Matters restaurant deal

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https://www.thechronicleherald.ca/business/local-restaurant-edible-matters-gobbled-up-248996/

The Chronicle Herald is reporting that the Hammond Plains restaurant/bar Edible Matters has been sold.  The Webber family sold to the Doherty family, which owns the Old Triangle bars throughout the Maritimes.

Written by Dan Jennings

November 23, 2018 at 2:13 pm

Do the federal tax proposals change your plans to sell?

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If you’re the owner of a private company in Canada, you should be concerned about the federal government tax changes that were proposed on July 18 (starting a 75 day consultation period).  These proposals (if enacted) will take away many of the income splitting tax planning opportunities available to entrepreneurs and their families.  One investment advisor we know has modelled out that these changes could reduce his clients’ investable assets in retirement by 40%!

See here for my firm’s overview of the proposed tax changes:

https://www.bdo.ca/en-ca/insights/tax/tax-alerts/a-detailed-review-the-government-private-company-consultation-paper/

If you’re a business owner who is considering selling your business in a few years, you should be even more concerned!  Many of you have established a family trust to own your shares and multiply the use of the lifetime capital gains exemption (LCGE) amongst your family members (assuming you have a business worth more than $830,000).  However, one of the proposed changes is to eliminate these tax savings that use family trusts … meaning, if you sell after 2017 (proposed), you could get 1 LCGE when you sell your business, not multiple … and since each exemption is worth approx. $225,000 in tax savings, some of you are going to pay much more tax that you thought when you sell.

I’ll leave that up to each of you to determine whether that changes your plans as to when you sell your business. There are some options for ensuring that you utilize the maximum LCGE available to you this year, rather than you having to sell this year (before these rules come into force).  Remember our tagline … One day, we will all sell our businesses, either voluntarily or involuntarily.  Unfortunately, one of the involuntary reasons to sell could be a changing tax regime.

If you believe (as I do) that business owners should be treated fairly in terms of taxes (but that doesn’t mean equal to that of employees), please contact your own local MP.  See below for the text of my message to my own MP.

The tax changes proposed by your minister Morneau in July will have a devastating impact on small business owners.

It is simply not “fairness” to compare the income of an employee to that of a small business owner … the employee doesn’t have fluctuating income, he/she didn’t invest capital to start the business, the employee has benefits like sick days and (often) a pension … the list of differences goes on and on.

And the government spin that this is about closing “loopholes” for the wealthy is simply incorrect.  The tax planning being disallowed here is a fundamental part of the planning for small business owners who form a part of the middle class in this country.  To be clear, getting rid of dividend “sprinkling” for million dollar business owners will not significantly impact those owners because most of their income is being taxed at the high rate already, but for the small business owner making $100-400,000/year, it will be a huge increase in taxes.

Does your government want mobile professionals (like doctors) leaving the country because you dramatically increased their overall tax rate?  Does your government want entrepreneurs to give up starting a business because they’ll pay over half of their income in taxes?

Written by Dan Jennings

August 21, 2017 at 3:07 pm

Central Building Supplies sold to Kent

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http://www.cbc.ca/news/canada/nova-scotia/sale-building-supplies-business-change-1.3874402

Antigonish, NS-based Central Building Supplies is being sold to Kent Building Supplies.  Owner Steve Smith is selling his 7 locations to Irving-owned Kent, effective Jan 1.

Another example of strategic buyer consolidation in an industry.

Written by Dan Jennings

December 3, 2016 at 2:49 pm

Congrats to Clark Toyota in Fredericton

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http://www.foxrocks.ca/local-news/2016/06/17/owners-of-clark-toyota-sell-the-fredericton-dealership

Congratulations to the Clark family in Fredericton, NB on closing the sale of their Toyota dealership.  The purchaser was the Girvan family, owners of Acadia Toyota in Moncton.

For readers of this blog, you know that this is yet another example of the rapid consolidation of the Canadian new car dealership sector, which is happening all across Atlantic Canada.

Written by Dan Jennings

June 19, 2016 at 11:29 am

Business valuation is much more than financial statements

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When we’re starting a business valuation assignment, we are often asked why we want a relatively long list of information (i.e. much more than just five years of year end financial statements).

The reason we ask for a collection of financial and non-financial information is that a business valuation is attempting to predict how the market will value the business, and the buyers in the market don’t just consider the financial statements.

The value of a business is driven by 3 primary factors:

  1. Annual cash flow.  Every buyer asks for the last 5 years’ financial statements, but history is only a guide to the future.  In addition, historical cash flows have to be normalized for non-recurring or discretionary items.
  2. Multiple or rate of return.  How the market perceives risk in that cash flow stream impacts the multiple to apply to that cash flow.  While there is no such thing as a risk-free business, the market perceives different levels of risk in different industries (and even within the same industry), and that qualitative risk assessment has an impact on value.
  3. Capital.  How much capital will be required to buy and operate a business is critical to the price a buyer can afford to pay for a business.  For example, high inventory levels that may not be all financeable by an operating line will mean a buyer will need more equity to finance inventory, and that will impact price/value.

If your accountant is valuing your business by only considering the financial statements, then perhaps you should have a discussion with a valuation/M&A advisor.

Written by Dan Jennings

July 23, 2015 at 5:24 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