Small Family Business in Canada (Trying to Buy It Out)

[valueinvestor]

Hi Everyone!

 

I'm trying to buy out a business for myself, but it seems that it may be pushed 6 months down the line, as I don't have the money.

 

I work for the business and the owner wants to retire badly that he is willing to sell the business to me for 4X EBITDA with VTB. It's in a very niche market, where only two players including us with a majority share.

 

To give you a sense, a competitor (largest in our space) that is more than 100x our size and generates $100M+USD in revenues per year tried to come into the market and failed. Additionally, they've attempted to do a joint venture with our company but was acquired by a Private Equity Group, before it could be solidified. Also, a competitor offered $4M CAD but requires the owner to stay on for another 5 years.

 

At the moment the sale price is $1.5M based in Toronto with a commercial facility worth $500K and assets worth another $1-2M. My plan so far is to earn the money and buy it out-right with an acquisition loan. I'm sure I'll be able to obtain 375K for the downpayment sometime in the next six months to a year, by working and doing various side projects.

 

However, I am open to any idea to shorten that timeframe. Does anyone know a better way? 

[LC]

Anything you can take out loans against? Margin your stocks, mortgage, etc. etc.

[valueinvestor]

Anything you can take out loans against? Margin your stocks, mortgage, etc. etc.

 

I do not have a lot of assets, and I got out of school recently (so student debt), but I was going to cash my stocks to purchase it.

 

 

[John Hjorth]

... with 4X EBITDA with VTB. ...

 

valueinvestor,

 

What do you mean with "VTB" here?

[valueinvestor]

... with 4X EBITDA with VTB. ...

 

valueinvestor,

 

What do you mean with "VTB" here?

 

Vendor Take-Back is a financing provided by the seller to the buyer to complete a transaction, when buyer is short of funds to purchase or seller wants to profit more by obtaining a bond-like investment. Not a formal definition, but hopefully provides some clarity.

[John Hjorth]

Thanks for the elaboration here, valueinvestor,

 

-To me, especially the Canadian investors here on CoBF throw around themselves with abbreviations, short of explanations [,please let it go here].

 

Please keep us updated in this topic about your fare - it's actually very interesting [ : - ) ].

[valueinvestor]

Thanks for the elaboration here, valueinvestor,

 

-To me, especially the Canadian investors here on CoBF throw around themselves with abbreviations, short of explanations [,please let it go here].

 

Please keep us updated in this topic about your fare - it's actually very interesting [ : - ) ].

 

For sure! I'll keep you updated.  ;D

[alpha]

What is the "commercial facility" does that mean the business owns the building it operates out of?

[wachtwoord]

Not my favourite suggestion but have you thought about asking friends and family (for a loan, co-ownership or for guaranteeing a bank loan)? Cause it sounds like you need a favour.

 

Good luck! :)

[HowMuchValue]

Are there any other employees that might also be interested? Maybe you could do a majority stake and have minority stakes for your employee partners. It might also help with retaining them and keeping them more incentivized to help the business succeed.

[Spekulatius]

^ Good ideas above. I like the idea to get other employees involved. It certainly seems like you will need some sort of a partner.

[Cevian]

Depending on the opportunity, I may have some investors in mind that may be interested.

 

Feel free to PM me.

[John Hjorth]

Depending on the opportunity, I may have some investors in mind that may be interested.

 

Feel free to PM me.

 

This is great. CoBF at its best.

[jm25]

Depending on the opportunity, I may have some investors in mind that may be interested.

 

Feel free to PM me.

 

As do I. Located in Canada.

[valueinvestor]

What is the "commercial facility" does that mean the business owns the building it operates out of?

 

No, they do not own the building, but like other manufacturing plants that do not own the property. If there is a secured lease with the landlord, a strategic buyer or a new entrant may be interested in purchasing an already running commercial facility, as opposed to developing one from scratch, if the price is right.

[valueinvestor]

Not my favourite suggestion but have you thought about asking friends and family (for a loan, co-ownership or for guaranteeing a bank loan)? Cause it sounds like you need a favour.

 

Good luck! :)

 

Thank you! At the moment, I have not tried, but in my experience, as it is not my first time running a business, whenever you take capital from someone, it is probably best to get it from a person/group who can provide know-how, network, or other benefits with the capital. It also helps to have a person who's investment goals are aligned with the operational goals of the business. So far in my mind, I do not know anyone, but I am already starting to work on it (but more likely a last resort).

 

Are there any other employees that might also be interested? Maybe you could do a majority stake and have minority stakes for your employee partners. It might also help with retaining them and keeping them more incentivized to help the business succeed.

 

The only coworkers that I have that were managers, capital allocators and/or operators are the owner, myself, and one other person. The owner wants to retire, and the other person is in the same position as me. However, if one of us has access to capital, then it will be acquired ASAP.

 

Depending on the opportunity, I may have some investors in mind that may be interested.

 

Feel free to PM me.

 

This is interesting, I definitely look forward to seeing where this goes.

 

Depending on the opportunity, I may have some investors in mind that may be interested.

 

Feel free to PM me.

 

As do I. Located in Canada.

 

I'll PM you as well! :)

 

--

 

Wow thank you for the incredible ideas and insight everyone, I certainly did not expect people willing to take a look at the business to be a potential investment, this really is amazing!

[farnamstreet]

We're always looking to invest in amazing people or businesses. https://syruspartners.com/

 

 

[fishca]

Hey, I work at the one of the Big Four accounting firms in the GTA (so lots of knowledge for this kind of transaction - albeit much bigger than your deal). Nonetheless, I have some contacts in the PE industry who may be able to help you out, and I also know of financing arrangements for small businesses (BDC, Canada Small Business Financing Program) that you might be able to utilize. PM me and I'll try to point you in the right direction.

[gurpaul88]

Sorry to hijack, but would love to know more about financing arrangements for purchasing business. I am situated in the GTA as well. TIA!

[valueinvestor]

Hey, I work at the one of the Big Four accounting firms in the GTA (so lots of knowledge for this kind of transaction - albeit much bigger than your deal). Nonetheless, I have some contacts in the PE industry who may be able to help you out, and I also know of financing arrangements for small businesses (BDC, Canada Small Business Financing Program) that you might be able to utilize. PM me and I'll try to point you in the right direction.

 

Thank you! I'll PM you now.

[netnet]

We sometimes invest in this space.

 

there is a whole community of so-called ETA folks-Entrepreneurship through Acquisition.  There a a number of lenders in the US, and I suspect there are a number in Canada as well.

 

There was a conference at Harvard Business School last month that would have been interesting.  I think there is one at U of Chicago.

 

There is a small but very supportive community active in the space.

 

DM me

[JayGatsby]

In the US we have SBA loans, which are basically government guaranteed loans explicitly for stuff like this. They require a personal guarantee, but otherwise are great loans... high LTV, no covenants. Not sure if Canada has something similar.

 

Also could try talking to the owner about seller financing. Sometimes this can be the best of both. If the owner knows you he/she may be fairly comfortable with the busines in your hands. So the owner gets to sell the business, while earning interest on the seller financing.

 

Finding a good operator of a good small business at a good price is a unicorn. If your resume is good and you set about raising equity you should be able to do it fairly easily (sounds like people on this board have already filled the bucket!). Make sure the incentives are aligned for everyone, but don't sell out too cheap. Don't give up control. Also, know your investor's styles. A lot of PE investors like to "talk strategy" and build forecasts, but not do any actual work. If you're grinding it out at a small business while someone else wants to call and talk to you about what you're doing it can get fairly tiring (talking from experience lol).

[valueinvestor]

We sometimes invest in this space.

 

there is a whole community of so-called ETA folks-Entrepreneurship through Acquisition.  There a a number of lenders in the US, and I suspect there are a number in Canada as well.

 

There was a conference at Harvard Business School last month that would have been interesting.  I think there is one at U of Chicago.

 

There is a small but very supportive community active in the space.

 

DM me

 

Sure, I'll DM you! Thank you!

 

In the US we have SBA loans, which are basically government guaranteed loans explicitly for stuff like this. They require a personal guarantee, but otherwise are great loans... high LTV, no covenants. Not sure if Canada has something similar.

 

Also could try talking to the owner about seller financing. Sometimes this can be the best of both. If the owner knows you he/she may be fairly comfortable with the busines in your hands. So the owner gets to sell the business, while earning interest on the seller financing.

 

Finding a good operator of a good small business at a good price is a unicorn. If your resume is good and you set about raising equity you should be able to do it fairly easily (sounds like people on this board have already filled the bucket!). Make sure the incentives are aligned for everyone, but don't sell out too cheap. Don't give up control. Also, know your investor's styles. A lot of PE investors like to "talk strategy" and build forecasts, but not do any actual work. If you're grinding it out at a small business while someone else wants to call and talk to you about what you're doing it can get fairly tiring (talking from experience lol).

 

We do have them here, if not similar. I'm just saving up the 25% downpayment required for such SBA loans.

 

I know what you mean, or atleast forsee it. I rather be working on the business as the sole owner, as opposed to holding hands.

[StockDuck13]

There are search funds that do this sort of thing, that's one aspect of entrepreneurship through acquisition (ETA) and there's a site called searchfunder.com which acts like an online community for the space.

 

I actually run a podcast on this micro private equity space because I find it so interesting. A lot of these deals include seller financing so as to give the owner some incentive to show you the ropes for the first year. The rest comes from SBA type loans and investors.

[JayGatsby]

I actually run a podcast on this micro private equity space because I find it so interesting. A lot of these deals include seller financing so as to give the owner some incentive to show you the ropes for the first year. The rest comes from SBA type loans and investors.

What's the name of the podcast? I'd take a listen.

 

In the US I think the seller financing can stack on top of the SBA loan (maybe up to a certain percent?), I'm not sure if you can do a totally no equity deal. It definitely keeps the seller's interests aligned with the buyer.