What you can learn about business exits from owners who purchased firms in Canada

Insights Jan 23 2020
Buying a business Canada

Buying a business is a great growth strategy, if it’s done right.

I’ve often written about exit planning for business owners in this newsletter. However, to understand the ins and outs of selling your business, you need to look at the other side of the ledger as well.

That’s why a recent BDC study on Buying a Business in Canada is a good read for business owners, especially those who are interested in selling their business.

Let’s cut to the chase then, shall we? Here are some of the top things you should know about the BDC’s study on Buying a Business in Canada.

1. Buying a business can be a ticket to rapid growth

There are a few key reasons why businesses pursue other firms. Expanding their geographic presence or adding a new line of business are among the top arguments, but the number one reason was that owners want to increase their market share.

That was the response from 41% of business owners surveyed in the study. More importantly, 46% of business owners who acquired a business said they had outpaced the industry average. Only 38% of businesses that didn’t purchase a firm outpaced the industry.

You might think that more than 46% of business owners should be outpacing the industry after buying a business, but the truth is that some acquisitions are not well thought out or planned properly. When done right, it is a viable growth strategy.

2. Youthful & Affluent defines the primary buyers

This shouldn’t come as a surprise, but firms that purchased businesses most often in the last ten years were firms worth $50 million or more. 59% of such firms fell into that category, but more than 45% of businesses worth more than $5 million also purchased firms in the past 10 years.

What’s more eye-opening is the age of firms acquiring new businesses. It wasn’t the oldest businesses swopping up and purchasing other companies. Businesses between five and nine years old were the most common cohort to purchase another business in Canada during the previous decade.

The study clearly shows that younger businesses possess more ambition to rapidly increase their growth, while older businesses seem to be content with where they’re at.

3. Many firms don’t see the need for buying

Owners who didn’t strive to purchase another business were asked why they chose to stand pat. A lack of finances and belief that an acquisition wasn’t the best growth strategy were the second and third most popular answers, but the most common one was owners didn’t see the need for buying.

That’s where an opportunity exists for owners looking to sell. If you’re selling, work with your team to pinpoint owners who should have an interest in buying your firm. Then, develop a strategy to go and pitch your business to owners who would benefit from the acquisition.

4. Lack of structure leads to unsuccessful acquisitions

This should stand out as the biggest red flag to anyone looking to buy or sell a business. How can you expect one of the biggest transactions of your life to run smoothly without a structured plan?

Here’s the one stat that hammers home the point of planning. Companies that followed a structured acquisition process were 94% more likely to experience high revenue growth after the acquisition.

It shouldn’t be a surprise that structure is key, but more than half of businesses (55%) do not appoint a team to head their business acquisition.

What this study teaches the seller

Every business sale is unique but there are a few takeaways here for sellers.

  • It’s evident that the number of businesses looking to sell will continue to increase over the next five to 10 years, meaning that the importance of having an experienced team in place is crucial.
  • Targeting younger businesses who are hungry to grow could be a viable strategy.
  • Since many firms don’t see the need of buying, you need to converse with your team, pick the most attractive attributes for your business, and come up with a plan to market those attributes other business owners.
  • You can do this on your own, but it will be difficult, and you will leave money on the table. Invest in a team, create a strategy, create a process and reap the rewards of that investment.

Selling your business is not just about collecting a cheque, just like building your business was not just about making money. We are here to listen and guide you. Reach out if you’d like to talk about your situation.

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