In April, to mark the launch of the First Nations Business Transfer Service (FNBTS), we decided to present a few articles on the theme of business transfers and acquisitions. In this article, we present the different steps of a business transfer as well as the support that the FNQLEDC can provide.
The support offered covers all stages of a business transfer project. Although a transaction is rarely conducted in a linear fashion, here are the main steps:
The needs and objectives of both the transferor and the buyer must be clear before embarking on a business transfer project. This step may seem trivial for some wishing to move forward quickly, but it should not be overlooked. It is worth noting that the most common factor of failure during a transfer is the affinity between the transferor and the buyer1. It is therefore crucial to fully understand what the transferor is looking for in their future successor as well as what the potential buyer wishes to accomplish as part of their business acquisition project.
The FNQLEDC can help stakeholders in determining everyone’s expectations and motivations as well as the involvement they wish to have in the enterprise. When the choice of enterprise is not yet confirmed for the buyer, we can assist them in their reflection regarding the targeted industries and the size of the planned acquisition. These reflections depend on several factors, including the down payment available for the completion of the transaction, as well as the type of transaction being considered (family, external, internal, mixed, progressive and/or collective).
Developing an action plan and targeting opportunities can be complex steps without support. However, it is essential to start thinking upstream about what an “ideal” transition would be in order to define our needs such as, for example, the experts that will have to be hired for the realization of our project.
Among other things, we can search for potential targets or help stakeholders in their research. Thanks to the partnership developed with the Centre de transfert d’entreprise du Québec (CTEQ), their INDEX, which is available free of charge to First Nations who are being supported by the FNQLEDC, as well as the networks and tools of both organizations, can help in identifying targets. With a well-established profile during the previous step, these searches will be facilitated and in line with the limits set.
The analysis of the project and the valuation of the enterprise are key steps in carrying out a business transfer. When a potential target has been identified or when the current owner and their successor are already communicating because of their past relationships, the project must be analyzed in more depth to properly establish the terms of the transfer. Although the vendor and the buyer may have a price in mind for the acquisition, business valuation is an option that is too often overlooked in setting an appropriate price range. However, a fair price does not equate to guaranteed success for the buyer. An analysis of the enterprise and the transaction will help to determine whether this is the right project for the buyer and will make it possible to set a realistic timetable for all stakeholders.
The FNQLEDC can support or jointly conduct an analysis of the project with the promoters. We can liaise with the experts hired if necessary and make the parties aware of the key factors that may cause the value of the enterprise to fluctuate. Our priority at this stage is to ensure that the important facets of the enterprise and transaction are analyzed and well understood by the parties while being involved at a level that is in line with their desires.
Due diligence then allows the buyer to be more comfortable with what they are planning to acquire. Several elements such as the contractual commitments of the enterprise and its payroll, taxation and legal history can be examined more closely to obtain a more complete view of what running the enterprise entails. It is important to understand that this exercise does not equate to a lack of trust in the vendor, but that it is simply a matter of making sure that our puzzle isn’t missing an important piece. Some of the items that are checked during this step are sometimes even unknown to the vendors.
As with the business valuation, we can liaise with the experts of the different elements of due diligence. The FNQLEDC can advise the buyer on what should be validated as part of the due diligence and provide support in verifying the key elements. The elements to be validated vary from industry to industry and certain validations such as environmental inspection or financial normalization may be more relevant in certain cases. We can therefore help sort out these variants.
The search for financing and tax optimization then make it possible to plan the structure of the transaction. Many programs are available to First Nations for business financing. The FNQLEDC has tax expertise in Indigenous communities and maintains connections with major institutions that financially support First Nations in their projects. We can therefore assist promoters in finding non-refundable financial assistance and financing that meets their needs. Particularly during transactions involving Indigenous and non-Indigenous parties, we can also make the parties aware of the tax realities of their counterparts and make sense of the tax issues on and off reserve. Several other financial elements such as the vendor’s purchase price balance sometimes require explanation, so the need for support during this step can be very relevant.
Transition planning brings us to the close of our transaction with a concrete view of what will happen following the handover. It is very important at this step to prepare the succession so as not to lose the experience acquired previously and to ensure the sustainability of the business. Some employees could, for example, have the idea of taking over the reins without having communicated this to the owner, which could impact their perception of the enterprise following the acquisition.
We can assist the parties in their reflection on the time required to ensure that the new owner can run the business on their own and that they are surrounded by the resources essential to operations. The responsibilities of each can be further detailed with a view to legitimizing the buyer’s place in the enterprise and avoiding misunderstandings with employees. It is crucial to ensure that knowledge, expertise and experience are secured within the next succession.
Although the closing of an acquisition may mean the end of a journey for the vendor, it is only the beginning of an adventure for the buyer. The FNQLEDC remains available for the new Indigenous owners following the acquisition in order to accompany them in the proper development of this new phase and to support them in their new challenges.
To learn more about business transfer, we invite you to contact our Business Transfer Advisor, Antoine Grenier, at agrenier@cdepnql.org or by phone at 418-843-1488, extension 1236.
References
- Cadieux, Lecorne, Gratton & Grenier, 2020. “Génération Repreneurs: sustaining Quebec inc.”, page 40. Publishers: Centre de transfert d’entreprise du Québec / Collection Académie du repreneuriat.
