Founding… or Acquiring an Existing Business?

07 September 2016 by National Bank
Young entrepreneur

Entrepreneurial acquisitions, which consist of acquiring an existing business rather than starting one’s own, is an increasingly popular option amongst entrepreneurial succession. Vincent Lecorne, director general of the Centre de transfert d’entreprise du Québec (CTEQ), explains why.

Is there really a hype surrounding the business acquisition trend in Quebec?

Vincent Lecorne: The first studies, in 2005, showed that barely 2 or 3% of people were interested, or even aware that acquiring an existing business was an option. This is despite the predicted tendency of massive retirements on the part of business owners in Quebec. Today, the most recent numbers show that 21.2%* of those who are thinking of starting a business prefer this option. So yes, we see an increase, as well as a better understanding of what business acquisitions are.

What type of entrepreneur is attracted to acquisitions?

V.L.: There is no specific age, however, at the CTEQ the average age is 38. We see young people who, for example, want to acquire the family business. But there are also people in their fifties who dream of starting their own business and who take action. They have the necessary experience, money and managerial maturity. Moreover, there exists many types of acquisitions. Amongst the succession, the collaborative approach is very important. It can be the son taking over his father’s business, with a member of management and a financial partner. There are many possibilities.

Let’s talk financing. Does a person have to be “rich” to acquire a business?

V.L.: Financing is rarely a major problem. This might seem to be quite a large investment at the beginning, but once we get in there and analyze the numbers, we realize that we can count on assets and projections to broaden our application. In fact, financial institutions are often more comfortable with financing an existing business (with a history, assets, and teams already in place) than a fledgling business or start-up.

Beyond the financial issue, what would be the main advantage?

V.L.: The transfer of a business happens at two levels. There is the transfer of property, but also of management. When the acquirer is identified early on, he can progressively earn his management wings. We allow him to establish his credibility with employees. This makes the transfer easier.

Is acquiring a business successful amongst Generation Y?

V.L.: entrepreneurial acquisition is particularly suitable for Generation Y. In fact, millennials don’t seem ready to make the same sacrifices as the first generation of Quebec business owners, that is to say take on the sole responsibility of putting everything in place. The notion of balancing work and family is also at the heart of their priorities. Sharing tasks and challenges is something that comes naturally to them. Entrepreneurial acquisition gives them the opportunity to create partnerships in order to acquire expertise as well as financing.

Even if the new generation doesn’t share that same sacrificial spirit, does it remain ambitious for itself?

V.L.: Of course! Thanks to its collaborative approach, this generation helps bring business to another level. There is one thing that we must not forget: when we talk about entrepreneurial acquisition, we aren’t necessarily talking about growth. We look to ensure the sustainability of the business. The goal is to push it further, by innovating, developing new markets, etc.

Is there room for freedom and creativity?

V.L.: When we repurchase a company, we also retake its products and services. But in 50% of cases, what we observe is that re-purchasers will launch new products and develop new services to ensure the company’s growth. The creative aspect of it is in fact quite present.

Are there any precautions to be taken when venturing into acquisitions?

V.L.: Whether we are talking about starting-up or re-purchasing, the primary reason for failure is always associated with a lack of management skills. We must know how to better surround ourselves in this case. In the case of a re-purchase, there is also a communication challenge. We must be able to transmit our vision and mobilize employees in the new direction we want to go.

Do you have a wish for business takeovers in Quebec?

V.L.: That the transferors have confidence in the new generation! Many doubt the quality of succession and delay their departure... We must remember that we do not have a tradition of entrepreneurial acquisition in Quebec. The first generation of entrepreneurs in Quebec is still very active and hesitant to pass the torch. In my opinion, putting our confidence in the new generation is what will really help entrepreneurial acquisition in Quebec.

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