BDC study shows that acquisitions are a driver for small business growth
BDC study also provides 4 winning conditions for a successful acquisition for small businesses.
MONTREAL — Entrepreneurs who choose to grow through acquisition are twice as likely to experience sales growth above their industry average as those who grow organically, says a new BDC study released today, entitled “Business Acquisitions: A Strategy That Drives Growth.”
The mergers and acquisitions (M&A) market among Canadian small and medium-sized enterprises (SMEs) rebounded quickly when the lockdown measures were lifted, and the outlook for the next five years is very positive, the study notes.
“Growth through acquisition has several advantages, including adding new resources to address a labour shortage and accessing more technology, so you can do more with less,” says Pierre Cléroux, Vice President, Research and Chief Economist, BDC.
The study also points out that the persistent labour shortage will likely lead to more and more entrepreneurs making acquisitions in an effort to bring in new talent.
“We also found that 13% of Canadian entrepreneurs plan to grow through acquisition, with new talent and technology as their motivation in order to deal with a labour shortage,” Cléroux adds.
The number of mergers and acquisitions increased in sectors benefitting from the pandemic. The share of transaction volume accounted for by health care companies increased to 19% from 7%. The share accounted for by information and communication technology (ICT) companies increased to 15% from 8%. Private and public financing are driving the M&A market, as well as aging entrepreneurs who want to sell. As with the Canadian population, Canadian entrepreneurs are aging. Coupled with the fact that the pandemic has made some rethink their plans, this will boost the supply of businesses for sale.
Interestingly, between 2016 and 2020, the number of Canadian SMEs that bought foreign companies was almost double the number of foreign firms that bought Canadian SMEs.
Four winning conditions for a successful acquisition
According to Étienne Drouin, Managing Director, Growth & Transition Capital, Atlantic and Central/Eastern Quebec, “to stay engaged, employees of both the buyer and the seller must understand where the company is going. And these words must come from the mouth of the president.”
The study highlights four winning strategies for a successful business acquisition:
- Include the acquisition in your strategic plan
- Be dedicated to the acquisition because it will take time
- Implement the integration plan from day one
- Plan for unpleasant surprises
The study surveyed 1,563 Canadian entrepreneurs online in May and June 2021 and was supplemented by a series of interviews with experts across the country.