Next-gen infusion sign of times
Non-traditional transitioning for traditional firms
Don’t look now, but a new generation is moving into many Canadian businesses, and it doesn’t involve armies of tech- talking coders, hipster baristas, art/ film/ music-producing creatives or other typical stereotypes of the latest Canadian business scene.
Generational change is coming to Canada’s traditional industries as well, says a Vancouver business merger- and- acquisitions facilitator.
Brent Cunningham, coowner of Sequoia Mergers and Acquisitions, says late-generation Xers and older millennials are starting to move into ownership of Canada’s more traditional, small-to-medium-sized businesses, most of which are focused on operating in more familiar Canadian industries like mining, construction and farming.
As an example, he points to a recent sale he worked out as typical. It involved the sale of a school for heavy- equipment operators — earth graders, bulldozers, mining equipment, the bedrock of Canada’s economy. The company had been through a sale before, but this time was in a unique situation.
“We arranged the sale of this company in 2010, to an entrepreneur who had grown several businesses, but we also arranged to have the CFO, a younger man, have a piece because he wanted to stay with the company but couldn’t afford to buy it himself,” Cunningham explains.
For six years, the j unior partner helped the new owner grow the company to many times its size, but then there came a time when that new owner wanted to cash in on his equity. However, under the traditional sales structure, if the senior partner sold, the younger partner who wanted to stay with the business would have had to sell as well.
The Sequoia solution was to find an equity firm that detected a coming boom in traditional industries and was looking for a company to grow along with the boom. But the school also recognized that jettisoning the junior partner along with the senior would destroy valuable business knowledge, as well as thwart his ambitions to grow it to an even larger company.
As it turned out, the buyer wanted an operational manager with a stake in the business, so a deal was made to change the buying formula: the majority for the new buyer, and an increased stake and role for the younger partner.
As a result, everybody got what they wanted — the old majority owner was able to cash out and retire, the younger would maintain his investment and could grow his role as a manager and investor, while the new majority owner would have a company it could scale to dominance in its industry.
Cunningham says this style of transitioning will likely be seen more often. “We have seen a lot of it in the past year. It’s becoming a not uncommon business model.”
In the past, a business owner who was selling was most concerned with how to get their money out of the business, Cunningham added. While that remains a large motivation, it is now also becoming more common to want to sell to someone who will grow the business as well as provide employees with opportunities to grow.
No doubt, some of this change is a result of shifting ownership demographics that follow economic cycles, he said.
Surveys have shown a large wave of retirements among baby boomer business owners before the recession of 2008. During that slowdown, retirements and business sales fell off as owners opted to hold on until better times would bring better prices and, thus, bigger retirement funds.
Cunningham suggests there is a feeling the “bettertime” cycle is peaking and good times may again soon start to recede. At the same time, a new kind of purchas- er — one who is willing to be involved in a non-traditional deal structure — is emerging.
As a result, owners considering retirement are once again thinking it might be time to sell. Entrepreneurial-minded employee-managers who want an ownership stake in the companies they work for are helping make that decision easier.