September 2020

Series for Business Owners

Wind Up Not Down

With most mid-sized business owners in Canada now into their 50s and 60s, due primarily to retirement, ownership of this sector will change dramatically in the coming years. It doesn’t matter which study of business transition in Canada you reference - BDC or CFIB to name just two - the numbers are mind boggling - over $1.5 trillion of assets will change hands and more than 500,000 medium sized business will be sold in some fashion. Half of these business owners plan to sell their business within the next 5 years, most of them to a party outside the family.

Over 70% of these owners have also confirmed they have no interest in expanding their business - at first glance, this may be the result of a 'wind down' mindset.

They should be doing the exact opposite. Whether the business is sold to an external party or transitioned within the family, it is impossible to over emphasize the importance of growth. We have seen this time, and again, in our divestiture work.

This past March, our company facilitated the sale of an established manufacturing company. The operation was already generating strong transferable EBITDA but what really drove the deal was the introduction of new products which increased both sales and profits going forward.

Track record is certainly required to demonstrate the stability of the operation, but pro forma financial projections are often more important not just to generate a higher enterprise value for the owner but to accommodate financing on any deferred payments.

Business owners looking to maximize value going into the sale process should not take their foot off the accelerator. They run the risk of leaving money on the table by putting their business on cruise control.

Rincroft facilitates the divestiture of medium sized businesses. Our clients are companies which are well established and profitable. Since its inception, our company has completed the sale of more than 50 business across a wide range of industries. We also provide advisory services assisting owners in building sustainable value even if they have no immediate plans to sell.

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