Business Acquisition, A Driver For Small Business Growth
Mario Toneguzzi
Entrepreneurs who grow their business through acquisition are twice as likely to experience growth above their industry average.
A study by BDC (Business Development Bank of Canada) also found that in the next five years 25 per cent of Canadian entrepreneurs want to sell or close their business.
In this interview, Pierre Cléroux, Vice President, Research and Chief Economist, BDC, discusses:
- The reasons for the growing trend in business acquisitions;
- Four winning strategies for a successful business acquisition;
- The economic outlook for this year
Enjoy,
Mark
Entrepreneurs who grow their business through acquisition are twice as likely to experience growth above their industry average.
A study by BDC (Business Development Bank of Canada) also found that in the next five years 25 per cent of Canadian entrepreneurs want to sell or close their business.
Pierre Cléroux, Vice President, Research and Chief Economist, BDC, said growth through acquisition has several advantages, including adding new resources to address labour shortages and accessing more technology, so you can do more with less.
“It’s a great strategy to grow a business. In the research we did, we saw businesses who are making acquisitions grow faster than the average business in their own sector,” said Cléroux. “The reason why businesses are making acquisitions is to increase their profitability, to increase their market share, to expand to another region.”
“We have been doing research on this for a long time but what is new now is some businesses are making acquisitions to have access to technology and also to have access to talent. There’s a shortage of labour in Canada. It’s very difficult to recruit people. So more and more businesses are making acquisitions to have access to employees. This is a new phenomena, basically corresponding to the main issue of the day.”
Cléroux is a keynote speaker at the Alberta Business Transitions Forum April 12 at the Calgary TELUS Convention Centre. He will give the presentation ‘Economic Outlook and Impacts for Entrepreneurs’, providing insights into both a macro view of the economy, as well as casting a lens on regional and industry sector differences.
Cléroux was appointed Vice President, Research and Chief Economist at BDC in 2012. He leads a team of experts who analyze economic data to identify business and sector trends impacting Canadian entrepreneurs. He is also responsible for providing economic analysis and advice to the Bank’s senior management team, and supervises all marketing and industry research activities.
He’s also worked for the Government of Saudi Arabia as Vice President, Business Analysis in the National Industry Clusters Development Program; Quebec Assistant Deputy Minister for Economic Development, Innovation and Export Trade; strategic advisor for Montreal International; and the Canadian Federation of Independent Business as economist and Quebec Vice President.
The BDC study highlights four winning strategies for a successful business acquisition:
- Include the acquisition in your strategic plan
- Be dedicated to the acquisition because it will take time
- Implement the integration plan from day one
- Plan for unpleasant surprises
Cléroux said there is an aging entrepreneur population in Canada. Many entrepreneurs are getting older with about 170,000 over 65 years old.
“So they have to think about business transition. A lot of people are going to have to make a transition in the next 10 years. On the other side, our businesses are typically small in Canada so it’s a good idea, it’s a good strategy, to scale up because you need a certain size to be more profitable, you need a certain size to export, you need a certain size to be as efficient as you can be. It’s a win-win, basically on both sides,” he said. “That’s why it’s an important topic right now.”
“There was always business transition in the past but what we are seeing now is there’s much more and there’s going to be much more in the next 10 years."
“It’s a great opportunity for many entrepreneurs who are younger and they are looking to grow their business because there’s going to be a lot of businesses for sale. Not all of them are interesting businesses to buy but a lot of them are. It’s a unique situation. It’s related to the fact that just like the general population entrepreneurs are getting older. There’s a lot of entrepreneurs over 65 so there’s a need for them to make this business transition. This is a great time for entrepreneurs who are a little bit younger, they want to scale up their business. There’s a lot of great opportunities out there.”
Cléroux said Canada is in good shape right now from an economic standpoint.
“We’re coming out of two years of strong growth and there’s a very positive impact of that. The unemployment rate is very low right now but the negative side is we have a lot of inflation. Inflation was driven by strong demand, also the War in Ukraine, supply chain disruptions. Inflation reached an historic high last summer,” he said.
“In order to reduce inflation the Bank of Canada has increased interest rates very rapidly and now we’re seeing the impact of that. The economy is slowing down which is basically what the Bank of Canada wants. They want to slow down the economy to reduce inflation and the strategy is working. Not only is the economy slowing down but inflation is really going down.
“I believe that by the end of this summer inflation will be under control and the Bank of Canada will be able to start to reduce interest rates which will create economic momentum again. I don’t think we’ll have a recession. We’ll just have a slowdown, that’s what we’re having now, but by the end of this year the economy will pick up again.”
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