It takes time and planning to identify qualified buyers for your
business. Too often, business owners make emotional or impulsive
decisions to sell their business, or worse, it is made for them due
to failing health, and consequently they do not receive a fair
price for their business.
During the initial planning phase, a business owner must assess
the market conditions in which his or her business operates and the
business's strengths, weaknesses, opportunities and threats. In
addition, an owner must have a sense of how growth can be achieved
given existing resources and what growth might be possible with
additional resources. In other words, an owner should be able to
assess how his or her business can be a platform for growth for a
From this understanding, one can start identifying possible
buyers that might be a strategic fit. A strategic buyer will often
pay a premium for a business based on:
Economies of scale The combined company can often reduce its fixed costs by
removing duplicate departments or operations, lowering the costs of
the company relative to the same revenue stream, thus increasing
profit margins. For example, administrative salaries and rent can
often be eliminated as the combined operation moves to one
Economy of scope and cross-selling opportunities Economies of scope are attained when, for example,
efficiencies are gained by increasing the scope of marketing and
distribution to additional products (sometimes creating product
bundles as seen in the Telecom sector). Access to customer channels
is often easier through buying a business than starting from
Ability to unlock underutilized assets In some cases proprietary resources such as R&D,
patents, proprietary processes and technologies and even personnel
are underutilized because of limited access to capital or other
constraints. Acquisition by a more well-resourced company can
unlock these assets.
Access to proprietary technology In some cases start-up or R&D focused companies have
developed technologies that can have an immediate and broad impact
on the operations of leading incumbents and substantially improve
Increased market power Acquiring a close competitor can increase market power
(by capturing increased market share) to set prices.
Shoring up weaknesses in key business areas When talent is hard to attract, acquiring businesses that
perform functions that are under performing can be an efficient way
to fill gaps.
Synergy An example of synergy includes increased purchasing power
as a result of bulk-buying discounts.
Geographical or other diversification Acquisitions can achieve immediate access to new
geographic or product markets. In some cases this can also serve to
reduce earnings volatility.
Providing an opportunistic work environment for key
talent Growth through acquisitions provides managers new
opportunities for career growth and advancement.
To reach critical mass for an IPO or achieve post IPO
full value Larger companies typically have more financing options
thereby reducing capital risk. Once public, companies need
sufficient trading in their shares to realize full value.
Vertical integration Vertical integration occurs when a company acquires its
supplier or major customer and can result in significant savings if
the supplier or customer has substantial market power.
The process of assessing a strategic fit with potential
purchasers can start up to several years in advance of a possible
sale; this way the business owner can manage the process without
neglecting the day to day operations.
When the finish line is in sight, business owners must
ultimately create a competitive bidding environment among qualified
buyers to realize the best price and structure. A third party
M&A advisor can be of tremendous value at this point. Our
experience is that a lengthy initial list of potential buyers is
soon whittled down to a short list (typically between three and
five) of bona-fide buyers that have the desire and the ability to
execute a good transaction for both parties. Discretion is
paramount at this point and, through an intermediary, it can be
maintained by not revealing company specific information in the
initial approach and requiring a non-disclosure agreement before
detailed information is provided.
In the end, the Principals should sit down face-to-face and
discuss the various potential benefits of an M&A transaction. A
good fit occurs when the buyer and seller like and respect each
other; share common values and can benefit from operational
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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