Economic crisis should not stall succession plans

(NC)—As Canada's entrepreneurial baby boomers approach retirement age, many will be looking to sell their business in the near term as a primary means of financing their retirement years. In preparing for this significant economic and often emotionally charged transaction, business owners may be grappling with many questions.

• How will the global economic crisis impact the sale of my business?

• Should I postpone my succession planning activities until the market recovers?

• If I pursue a sale transaction now, will I sacrifice value?

Despite recent stock market declines and tightening of bank lending practices, well capitalized industry consolidators continue to create an active market for small and mid-sized transactions that do not rely on financing funded from debt and equity markets.

“Business owners can rest assured that options still exist, particularly for the small-to-medium sized market,” says Michael Walker, national director, Aon M&A Transaction Advisory Group.

Industry consolidators report that they see excellent opportunities for strategic acquisitions, even in current markets, as they perceive less competition from financial buy-out firms that have paid relatively high prices for businesses using easily accessible and inexpensive debt, in recent years.

The general consensus from the nation's top economists is that we may be in for a long wait for a general economic recovery let alone another over-heated merger and acquisition (M&A) market like 2006-2007. In the meantime, your ability to compete effectively as a small to mid-sized business in hard economic times may adversely impact the value and/or saleability of your business later on. “Depending on your personal situation, the implications of postponing your succession planning process can have more negative consequences than proceeding in the current market,” cautions Walker.

That said, the current economic uncertainty is temporary – cyclical really – and does not mean that fire sale prices are the only option for a well-run business. “Purchasers typically assess an acquisition opportunity on its own merits, based on the long term future prospects of the business, inherent business risk and the associated rate of return on investment it will provide, regardless of market conditions,” notes Walker. This disciplined approach from buyers implies a natural bias toward M&A transactions involving higher quality sellers; and recent statistics bear this out. A recent survey by Standard & Poor's reports that many transactions have been completed in North America since September 30th with healthy average valuation multiples.

Walker advises, “If it made sense six months ago for you to be initiating plans for the sale of your business, it probably still makes sense now.” Things are not as bad in the Canadian M&A market as you may believe from dire media reports. Different industry sectors will be impacted in different ways. “Speak to an M&A advisor who can give you specific advice on the market for your business before you make a decision and don't be scared off by doomsday rhetoric,” says Walker.

More information on preparing your business for sale or succession is available online at www.aon.com.

Source: www.newscanada.com
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