Increasingly Upbeat Canada M&A Up 40.4 % Year-on-Year, 2014; C$245.7 billion
Reasons to be bullish Canada M&A 2015
- Growth and scale.
- Commodity prices lowest level in years. Opportunities for resource deals at discounts.
- Extended low interest good for real estate M&A.
- Stronger economic activity.
- Canadian dollar decline over past 12 months. International and US buyers have structural discount advantage.
- Large number of Canadian transactions involve small and medium sized businesses often in the distribution channel with the majority valued at under US$100 million. Up to 30 % owned by baby boomers looking for an exit strategy. Private sales are popular.
Internationally, there seems to be a search to scale with other markets in North America seeing increased M&A. Key deals reveal size is becoming important. Once the norm was between $5 billion and $10 billion, with the norm moving closer to $10 billion driven by the desire to reach scale.
Merger & Acquisition (M&A). This usually means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills, and can save resources by combining. For bigger companies, it’s a more efficient and a quicker way to grow their revenue than to create new products.
The Merger & Acquisition strategy is the most likely option for companies.
Name potential companies (any unique relationships with them?)
Name types / categories of companies that could acquire you?
Why would they acquire you, how do you fit into their strategy?
Why don’t they try and build it themselves?
Initial Public Offering (IPO). This used to be the preferred mode, and the quick way to riches. They are flashy, and they get all the press. Some say they make the lottery look good by comparison. Many public companies weren’t even founded by entrepreneurs, but rather were spun out from existing companies.
If you’re funded by professional investors with a track record of taking companies public, you might be able to do it.
What is involved in an IPO?
You start by spending millions just preparing for the road show (dog and pony show) where you convince investors your stock should be worth as much as possible. Unlike an acquisition, where you craft a good fit with a single suitor, and approach hundreds of analysts.
- You’ ll be on the cover of Newsweek.
- Your stock will be worth in the tens–or maybe even hundreds–of millions of dollars plus.
Your VCs will finally stop bugging you as they frantically try to insure their shares will retain value even when the lockout period expires.
Only a very few number of small businesses actually have this option available to them since there are very few IPOs completed annually.
You need financial and accounting rigor from day one far above what many entrepreneurs generally put in place. Some forms of corporations will require a reorganization before they can be taken public.
You’ll spend your time selling the company, not running it. Investment bankers take a percent off the top, and transaction costs for an IPO can run in the millions.When your lockout restrictions expire, your stock may be worth very little.
But, with money to grow the business from the infusion of cash derived from the sale of stock, the company may grow its business without having to borrow from traditional sources, and it will thus avoid paying the interest required to service debts.
The cash spent on growth initiatives can result in a better bottom line. New capital may be spent on marketing and advertising, hiring more experienced personnel who require lucrative compensation packages, research and development of new products and/or services, renovation of physical plants, new construction and dozens of other programs to expand the business and improve profitability.
Sell to a friendly individual. This is not an M&A, since it is not combining two entities into one. Yet it’s a great way to “cash out” so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again. The ideal buyer is someone who has more skills and interest on the operational side of the business, and can scale it.
Will your company generate excess cash flow that could make it attractive to financial buyers to generate a return?