Accessing Canada’s private equity markets
Deloitte Corporate Finance Inc.
Today’s business owners are aware that mid-sized businesses drive Canada’s economy. “Yet, many companies still face a challenge when it comes to raising capital or getting the maximum exposure for their business as part of a sale process, management-led buy-out, or succession plan” suggests Doug McDonald, a partner at Deloitte.
While traditional avenues include passing a business down to subsequent generations or selling the business through an Initial Public Offering (IPO), increasingly these options are not delivering the anticipated value or benefits. However, the good news for private businesses is that Canada’s growing private equity markets have evolved to the point where there is a vast amount of capital available for companies in every economic sector.
The Canadian private equity market is made up mainly of professionally managed institutional funds. This has resulted in an even greater level of discipline in the investing process which benefits both the investee and investor. The capital these funds invest comes from private investors and other institutional sources, such as pension funds and insurance companies. In North America, it is estimated that there is in excess of $250 billion available for investment in private companies and the Canadian portion of that is growing.
“The current market environment provides a lot of opportunity for businesses interested in raising capital for growth or funding a succession plan,” suggests McDonald. “Companies with solid growth prospects and top management teams will be attractive to a number of private equity investors and are likely to get a favourable business valuation.”
The private equity market is growing in importance in Canada, but as Doug McDonald, of Deloitte, makes clear, “partnering” is important. Not all private equity funds have the same approach, nor do they all have similar operating philosophies regarding their investments. Some are decidedly hands-off while others roll up their sleeves and get involved in their portfolio companies.
Given the long-term nature of the relationship, it is imperative to find the right match. The typical holding period for a private equity fund is anywhere from three to seven years and typical exits are realized through an IPO, a sale to a strategic buyer, or a management buy-out. Having an idea of where the exit may come from is an important decision-making factor for many funds.
“For business owners looking to raise funds or sell equity, it comes down to creating a compelling financial story and demonstrating they are the right person to unlock the anticipated returns,” McDonald explains. “For their part, owners looking to sell as part of a succession plan must show their business has the management expertise to achieve its targets once a transition has happened.”
If you are interested in exploring your options with private equity investors, it is important to work with advisors who can help you get the best value for your business. In this way, you can begin to take the necessary steps to raise the financing you need to achieve your goals.
Finding value in the private equity markets
By keeping the owners’ goals in mind, this company’s advisor was able to bolster this business’s revenues and profits, positioning it for sale in the private equity markets. As a result of this advance planning, the company attracted the eye of a U.S. private equity fund that was able to offer a higher multiple than the owners ever anticipated thanks to its specialized understanding of the retail industry.