November 8, 2017, Montreal— Forty-four percent of Canadian entrepreneurs with 20 employees or more expect to acquire another company in the coming five years, says a new BDC study released today, titled “What do buyers look for when purchasing a business?”
“The coming wave of business transitions and expected surge of consolidations bode well for Canada’s economy,” says Pierre Cléroux, Vice President, Research and Chief Economist at BDC. “It should allow for the emergence of Canadian businesses that are in a better position to compete internationally and at home”.
BDC’s study is one of the few to look at buyers of companies and their intentions. Most buyers want to buy a profitable and stable business (61%) or a profitable and growing company (31%), with only 8% looking for an unprofitable or declining firm to buy with the expectation of turning it around, the study found.
Among the findings in BDC’s study:
- Entrepreneurs seeking to make an acquisition are among the most dynamic in the country. 84% say they are eager to grow, while 63% are willing to take risks.
- The top-cited motivation of buyers is horizontal integration (acquiring a competitor), mentioned by 36% of companies, followed by expanding geographic presence (27%).
In addition, the study gives advice to entrepreneurs on how to maximize an acquisition’s chances of success. Business owners should:
- Carefully search for the optimal acquisition target and do thorough due diligence.
- Make sure the acquired company is a good cultural fit with their existing business.
- Be disciplined about how much they pay.
- Get outside advice if needed.
- Look for financing that maximizes their repayment flexibility.
These findings build on an earlier BDC study released in September that looked at seller intentions. That study reported that 41% of entrepreneurs intend to sell their business in the next five years. However, 71% are reluctant to take risks to improve their business performance, which may cause them to sell below market value. Canadian entrepreneurs must prepare for the change to be better reap the benefits.
Both BDC transition studies were conducted in partnership with market-research firm Nielsen, which surveyed leaders at over 2,500 small and mid-sized businesses in the spring of 2017.
BDC is the only bank devoted exclusively to entrepreneurs. It promotes Canadian entrepreneurship with a focus on small and medium-sized businesses. With its 118 business centers from coast to coast, BDC provides businesses in all industries with financing and advisory services. Its investment arm, BDC Capital, offers equity, venture capital and flexible growth and transition capital solutions. BDC is also the first financial institution in Canada to receive B Corp certification. To find out more, visit bdc.ca.