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Anyone buying/holding niche family businesses in Canada?


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Posted (edited)

Hi Everyone,

 

Has anyone here raised money to buy small family businesses in Canada looking to hold them forever? I would love to hear about how you went about finding the right deal structure/investor base. I have done one acquisition early last year, and I have two additional leads of great niche companies that are too big to take on by myself. I got to know the founders in the past couple years and they are lovely people who care deeply about their staff. Here is little about each of the business.

 

Business A: A niche industrial distributor selling mission critical components. Little competition in Western Canada. Enjoys customer loyalty and healthy margins because what they sell do not take up a big part of their customers' budgets, while being both technical/mission critical. Makes about 1.5~2mm in pretax earnings. Has operational family members who would like to retain some ownership. The founders are a husband/wife duo looking to retire.

 

Business B: A niche trade business with 50% revenue coming from maintenance/recurring revenue. Also makes about 1.5mm in pretax earnings. Has a GM in place. The owner loves the business but feels responsible for having figured out the succession planning, in order avoid his wife needing to handle the business if something were to happen to him. The owner is not needed for the operation. 

 

Both of these businesses are asset-light, highly profitable cash-flow machines with proven track records. They have limited growth opportunities, however, and probably the best course of action is to simply let the operators do what they always have been doing, and use the resulting cashflow for other acquisitions of similar sorts. I believe that valuation could be <5x pretax earnings, hopefully closer to 4x, depending how much vendor financing is involved.

 

Both of these founders have expressed interest in selling to me if I could raise the right kind of money. I don't think the traditional micro-PE or SearchFund model would work, largely due to its focus on "improving operation" and seeking an exit in 3~4 years. If you have dealt with transactions with similar contexts, I would love to hear from you and hear about how that is going! You can reach me via my company email @ daehan.c@priorityappliance.com.

 

Daehan from Vancouver, BC. 

 

 

Edited by daehanc@gmail.com
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Its very interesting. I am trying to build out a niche business right now. To be fair and honest with myself If i left the business shit would hit the fan so fast the terminal value would screech to a halt. Id take 1 x sales just for the existing customers. My mom thinks I am a business titan because I have some fortune 50 customers, my kids think im a janitor who is always dirty, my wife and my accountant knows im just another plumber, doctor, architect you name it job masquerading as a mini corp. Time for money or no money without the time.

 

Ive always thought i could expand into a larger operation similar to what you are looking at and then I quickly ducked back into the comfortable dustbin I dared crawl out of. My worry with any of these acquisitions is that the customer and vendor relationship turns out to be the secret sauce, maybe that means better margins or outright customers leaving when the original vendor leaves.

 

I hope it works out for you.

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