The first business SeaFort Capital acquired was owned by a 79-year-old entrepreneur. “He was still running the business and was actively involved on a day-to-day basis,” recalls Rob Normandeau, president of the Halifax-based investment firm. “But it was getting to the point where it was more difficult for him to do that.”
As baby boomer retirements accelerate, many entrepreneurs will step back from day-to-day work—but first they’ll need to find new owners for their businesses. The Canadian Federation of Independent Businesses forecast in 2012 that over the following decade, some $1¯trillion worth of small-business assets would change hands.
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SeaFort, which was established in 2012 and is backed by members of the Sobey and McCain families, and Normandeau says he hasn’t seen quite as many retiring entrepreneurs looking to sell as he expected. Economic headwinds may have caused them to hold on, says Ken Wither, founder of Calgary-based Acuity Business Group. “Many baby boomers should have sold after the last crash, and they delayed because the values went down,” he says. Those owners are now being forced to market by health concerns or a lack of successors within their businesses.
That could set the stage for the biggest intergenerational transfer of companies Canada has ever seen, as gen-Xers and millennials buy out the boomers. But George O’Neill, a former brokerage owner who is now CEO of the REALTORS Association of Hamilton-Burlington, says buying patterns have less to do with age of the owners than the motivations of the buyers. About a third of the buyers he’s worked with have been transitioning out of a traditional job and were looking to do something on their own.
That’s a common story in Alberta, according to Wither. “What we’re seeing is a whole bunch of engineers who were laid off from the oilpatch,” he says. “They have money and are fed up with [the cycle of] being hired and rehired in the oil industry, so now many are looking to buy a business.” But Wither cautions that to succeed, these buyers need a “burning desire” to do whatever it is the company they’re acquiring does—not just experimenting with a change of workplace scenery.
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Boomers aren’t the only ones looking to sell, and corporate escapees aren’t the only ones looking to buy. Some younger entrepreneurs are attempting to cash out early, before the predicted fire sale of boomer-owned businesses has a chance to depress prices. The oversupply led PricewaterhouseCoopers to predict a buyer’s market between 2018 and 2025. Lured by the prospect of a steal, would-be entrepreneurs have been joined in the bidding by companies interested in expanding through strategic acquisitions and private equity groups like SeaFort seeking solid “old economy” assets.
But despite these supply trends, companies and individuals aren’t exactly shopping in the bargain bin for boomer businesses. If anything, owners tend to inflate their asks, says Wither.
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O’Neill, a member of the International Business Brokers Association, notes that larger strategic buyers have started to price smaller ones out of some deals in the U.S., where the market has been frothier than in Canada thus far. He also points out that an entrepreneur is unlikely to part with his or her life’s work on the cheap. “Look at the horse-buggy manufacturers a hundred years ago—at some point, [buyers] were getting a deal on those businesses. But what were the future prospects?” O’Neill asks. “If something looks too good to be true, maybe you’re not getting the full story.”
Still, the bulk of the boomer generation is fast approaching the end of their careers, and not every business owner will want to hold on as long as the first seller to Seafort did. Expect a rash of “for sale” signs to go up at Canada’s independent companies, and soon.
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What’s your read on the M&A market right now? Are you considering buying or selling a business this year? Let us know by commenting below.