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Waiting on the “Big Wave!”

I hate waiting.  Waiting for my meal to come, waiting for a cheque in the mail, waiting for my teenage daughter to come home with my car.  I am lucky that I don’t surf, because I expect I would hate waiting for that next big wave.

From comments I hear almost daily, purchasers of businesses hate waiting too.  Like surfers perched impatiently on their boards, they have been told for several years that the BIG WAVE is coming.

In 2007, Richard Jackim wrote one of the bibles of exit planning, “The $10 Trillion Opportunity”, in which he shared the prediction of economists and demographers that, “over the next 10-15 years, more than 70% of privately held businesses are expected to change hands”.

Closer to home, CIBC calculated in 2012 that “close to 30%, or 310,000, of small business owners will exit ownership or transfer control of their businesses within 5 years; and one-half (or 550,000) within the next ten years”.  British Columbia led the country with at least 40% of small business owners expecting to exit within 5 years.

Both of these articles warned of potential economic gloom if there were not enough purchasers and/or capital to buy all these businesses.  With small business being the “engine” of our economy, what would be the impact if a significant number of businesses simply ceased to exist when their owners were ready to move on.

Frankly, it was these statistics that attracted me to the exit planning industry a couple of years ago.  I thought that if I could help my clients be more prepared to exit and more attractive to potential purchasers, they would be more likely to be acquired then their less prepared counterparts.

A few months ago I met with two young, bright and well-financed entrepreneurs who I knew were aggressively seeking businesses to buy.  While I work mostly with potential sellers, it helps me do my job when I understand the motivations of buyers. But when the conversation turned to the expected shift from a “seller’s market” to a “buyer’s market”, they laughed out loud.  “The elusive BIG WAVE”, one of them chuckled.  “We have been hearing about it for years – any idea when it is really coming??”  They went on to tell me that, while they have successfully acquired 2 businesses in the last 4 years, they know of at least 100 active buyers who have not bought a business.

I had a similar discussion a few weeks ago, when meeting with the Managing Director of a private equity group focused on small to medium sized businesses.  “When you see the BIG WAVE, you let me know”, he said, “because we have been waiting on it for a long time”.

Is the BIG WAVE still coming?  One would think that it must be – demographics don’t lie; baby boomers own the majority of small businesses in Canada, and we are all getting older.  Or has it already hit in smaller, less noticeable waves?  Here are a few possibilities:

  • Strategic “industry” buyers have quietly acquired competitors, suppliers and customers, reducing some of the supply of businesses offered to private equity and other purchasers.
  • After the recession of 2008, business owners have experienced a recovery in the last couple of years, and have decided to “make hay while the sun shines” rather then exit their businesses during an upswing.
  • Business owners are still in denial – they have their heads down in their businesses, and have not stepped back to plan for the future.

The BIG WAVE is probably still coming, and business owners will likely experience increasing competition to find a good buyer. Business owners with well-planned and executed exit strategies will have an advantage, with a better opportunity to attract good prices and terms.  And if the BIG WAVE arrives quickly, some business owners may be paddling furiously to catch it before its gone.

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