Historic wave of business transfers: seizing business opportunities

09 February 2024 by National Bank La Presse
An expert discusses the upcoming wave of business transitions in Quebec

National Bank estimates that approximately 60% of its business clients want to transfer their business within the next 5 to 10 years.1 "This is the first time that Quebec will be facing a large number of business transfers in such a short period of time," said Geneviève Turbide-Potvin, Senior Vice-President, Commercial Banking and Private Wealth 1859, Quebec and Eastern Ontario, at National Bank. This context offers opportunities on both sides of the transaction and involves human and societal challenges that should not be underestimated.

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Growth and prosperity: here's the other side of the coin

The pandemic has been followed by phenomenal economic growth, benefiting many businesses. Challenges have also multiplied, including labour shortages, supply chain difficulties, the impact of geopolitical conflicts, and successive interest rate hikes. "Many entrepreneurs are now at the end of their rope and are thinking of bringing forward their transfer to take a well-deserved break," observes Potvin.  

Ingenious solutions to address financing challenges

A company’s valuation is often based on a multiple of its earnings. However, years of record sales and high interest rates often result in a daunting purchase price. "Structuring financing with several stakeholders or opening up the shareholding earlier and gradually can make the transfer more accessible to the next generation," suggests Potvin.  

These solutions also help tame the responsibilities involved in taking over a mature business compared to a start-up. "Surrounding yourself with people with complementary expertise, including with the support of a group of investors, helps you feel less alone and better prepared for the challenges," adds the specialist. 

Finally, the financing plan must provide a business with the flexibility to adapt to an increasingly competitive world, without suffocating it with financial constraints. "We shouldn't condemn ourselves to excellence by being forced to achieve ambitious goals to meet our financial commitments," explains Geneviève Turbide Potvin. There should be room for maneuverability to deal with unforeseen events and ensure the long-term sustainability of the business.”

Protecting Quebec's flagships and preventing economic exodus

Between the economic slowdown, the aging of the population and the decline in takeover intentions since the pandemic, the pool of potential buyers is rather limited to respond to this major wave of transfers. There is therefore a risk of witnessing an exodus of Quebec's flagships which, without local succession, could pass into the hands of foreign companies. 

"In 15 years, Japan has lost about 20% of its businesses due to inadequate planning in a similar context," 2 says Potvin.

Where is the ideal successor hiding?

Entrepreneurs are passionate people who have invested everything, financially and personally, in the success of their business. It’s therefore understandable that they prefer a successor who shares their vision and values. Buyers, on the other hand, want to leave their mark and guide their acquisition into a new era. "Having been founded by and for entrepreneurs, National Bank has the network to support each party in making their dreams come true," says Potvin. 

For example, when a large manufacturer in Centre-du-Québec received an offer from a U.S. private fund, the bank proposed an alternative solution to keep the company here. "The key personnel who have contributed to the company's success have joined the shareholder base thanks to flexible financing that leaves room for growth, while the transferor has reaped the rewards of its years of effort," summarizes Potvin.

Taxation, disbursement and inheritance: a financial headache to solve

Business people's wealth is often complex and requires significant tax planning so that they’re able to optimize the sale of their business and dispose of their assets. Yet, 43% of family businesses have no succession plan, and 30% have only a very informal one.3 "When you're busy running your business, you can sometimes overlook what still seems far ahead," says Potvin.

That's why, for almost two years now, National Bank has brought together its specialists in business transfers, business banking and private wealth management within a single team. "For an entrepreneur, it's often the transaction of a lifetime," says Geneviève Turbide Potvin. It's an emotionally charged process for which expert guidance and careful preparation — ideally two to five years before the transaction — are essential.”

Forging the province's economic future

Quebec has a diverse economy, an abundance of natural resources and access to the most affordable energy in North America. Supply challenges are conducive to a strong comeback of the local manufacturing industry. Many local businesses are ideally positioned to take advantage of this and will soon be up for sale. Who, then, will take over these precious sources of employment and prosperity? "Every business we keep in Quebec is another step towards a rich and sustainable province," concludes Potvin.

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