Strategy

EG: How important of a role do mergers and acquisitions play within both the domestic and global marketplace?

 

Travis Regent: In public markets, consolidation continues to be an important theme as management teams manage inflation, supply chain disruptions and labour shortage considerations. Joining together to acquire talent, vertically integrate and eliminate redundant costs is high on many businesses’ strategic agendas. This in turn helps maintain affordability for consumers. Equity markets have demonstrated volatility and valuations that can be more representative of sentiment than fundamentals. There is a growing trend of investors cycling out of public markets into the alternative investment class. There is a school of thought that privatisation allows for focus on long-term value creation and better control, via patient capital amongst a closely held group of shareholders, and is therefore the better investment. As this continues, the prevalence of private equities and mergers and acquisitions for investors will continue to increase.

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EG: Why is due diligence so important in mergers and acquisitions today?
 

TR: Companies and investors have recently lived through incredibly uncertain times. Since March 2020, business owners have grown accustomed to operating in volatility, with the last twelve months not bearing any resemblance to what the next twelve months will bring. In the wake of the pandemic, investors are struggling to decipher this noise when evaluating potential opportunities. In the face of continued unpredictability, in combination with investors’ increasing level of scrutiny, investors are more interested in understanding “sky is falling” scenarios. Now more than ever, due diligence is critical to deciphering the noise of 2020-2022 results and providing investors with confidence in deals and a clear path forward.
 

EG: How may entrepreneurs maximise profits before the sale of their business and what strategies would you deploy to assist with both pre and post-deal advisory?

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TR:  Independent due diligence is like getting a home inspection. Sure, you can buy a home without one, but most people recognize that would leave them open to risk. It's the same when buying or selling a business. Far too often entrepreneurs approach their exit with a lack of preparedness and leave millions of dollars on the table. In the Canadian market-place, a study has shown that 63% of business owners did not attempt to maximize profits in advance of a sale. First and foremost, entrepreneurs need to put their best foot forward when approaching the capital markets and that starts with your advisors. Your diligence advisor can assist with preparing your financial information and  crafting the story of your business. Even for small companies, a $50-$60k financial diligence fee might generate you 6 or 7 figures of additional sales price. We are there to be your guide through the full process – from preparing a robust dataroom to getting your deal across the finish line. Having the right advisors at the table and assembling the ‘A’ team will empower businesses to maximize their valuation. Give yourself time, try to start preparing 1-2 years in advance.

EG:  What pertinent macroeconomic trends do you see impacting the world of mergers and acquisitions in the Canadian middle-market within the next 12-24 months?

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TR: Statistics have been predicting a “wave” of business owners exiting their companies due to the ageing baby boomer population. Studies have predicted as many as 72% of Canadian entrepreneurs will be transitioning in the next 5 years. We believe this exodus has been delayed by the pandemic, with business owners hoping to show a return to ‘normal’ before selling. We expect middle-market activity to continue to be strong for the next 12-24 months.
 

EG: Tell us about the most challenging task you have ever accomplished pertaining to due diligence and structuring within M&A? 

TR: During COVID-19 we helped a company near bankruptcy purchase another business to improve its liquidity and balance sheet, ultimately saving our client’s business. We structured the deal such that the client did not have to put in any cash. The deal was majority financed through an equity roll, bank debt and vendor take back. In closing the transaction, we recapitalized the company and got them out of special loans.

EG: As Chartered Business Valuators with over 150 valuation and modelling mandates under your belt, what are the most effective ways to value a business?

TR: Cash is king when it comes to valuation. At the end of the day, as a valuator we need to understand the net present value of all future cash flows of a business or asset. The most effective way to value a business comes down to being able to interpret underlying trends in historical cash flows and accurately convert non-cash items into cash.

EG: With a successful track record of over 30 years of client advisory, what would you say is the secret to taking client deals and their companies to the next level?

TR: Our superpower is facilitating communication and building relationships around the table, so you can close your deal with confidence. All of our team members left senior positions at some of the world's largest and best-known firms to challenge the status quo of what a financial professional firm looks like. Our mission is to provide the level of expertise you'd expect from a large international firm, with the service and agility of a boutique firm.  EG