5 minute read 4 Oct. 2021
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How Canadian family businesses could unlock their full capital potential

By François Tellier

Canadian EY Private Strategy and Transactions Leader

Canadian EY Private Strategy and Transactions Leader and National Director of EY's Entrepreneur Of The Year program.

5 minute read 4 Oct. 2021

What Canadian family businesses can do today to capitalize on the favourable market conditions

In brief

  • How is your family business taking advantage of a favourable market in Canada?
  • Do you have a strategy for allocating your capital?
  • Have you considered strategic transactions to help secure your legacy for generations to come?

Canadian family businesses are uniquely positioned to capitalize on a market that’s now as active as it’s ever been. Capital is plentiful, interest rates are low, valuations are high. These intersecting factors are generating new ways for owners to reframe their path forward. Whether you’re looking to grow, divest or uncover a compelling route to succession, explore your options now or run the risk of missing out.

What does your family business stand to gain?

Make no mistake: the pandemic continues to foster uncertainty, with varying impacts from one sector to the next. The market, though, is having a moment. Last winter, nearly 80% of Canadian executives said their company had failed to complete, or cancelled, a planned transaction during the previous year. Fast forward to today, and those decision-makers appear ready to put 18 months of pent-up capital to work. Compound that drive with a ready availability of cash and historically low interest rates, and your family business could be the perfect opportunity for another firm to grow through acquisition.

In parallel, the pandemic is also driving the need for companies of all shapes and sizes to innovate quickly and transform digitally. As larger organizations look to buy — not build — those capabilities, your family business could provide in-house agility or a key partnership for any corporation hungry to capitalize on what you already do very well.

All of this is happening as investors compete by seeking out alternative investments and asset classes. This includes family offices, which we see professionalizing and showing an increased interest in creating dedicated private equity (PE) arms from within. Aligning what your family business hopes to achieve next with this well-capitalized pursuit of synergies, acquisitions and partnerships could be a fruitful proposition.

The 2021 EY and University of St. Gallen Family Business Index continues to show that family businesses are vital to the health of the global economy. That includes the 14 Canadian organizations listed among the world’s largest family-owned businesses. What matters now is how these organizations will make the most of this environment.

How can your family business capitalize on this market?

Whether you’re on the buy side or the sell side, or simply looking to partner strategically, asking these five critical questions now can help you make the most of this period:

  1. Are our growth plans bold enough? Don’t sit on the fence about growth. Canadian companies that actively pursue M&A to accelerate growth now are more likely to increase their chances of outperforming their competitors. We know that in addition to pandemic-related considerations, geopolitical uncertainty moved 74% of Canadian execs to alter their strategic investments last year. Continuing to stand back could cut your family business off from valuable opportunities. Get firm on how you want to grow from here. Then, head out into the market and see what kind of deals could fuel your bullish plans.

  2. Do we need more capital to move forward? Cash unleashes potential. Capital providers — both banks and non-banks — are well capitalized and aggressively looking for smart places to invest. As businesses reopen and restrictions ease in tandem with growing vaccination rates, the final quarters of 2021 are projected to show strong performance. If capital is what you need, this could be an optimal time to explore how strategic investments or divestments could support your future success.

  3. How can collaborative partnerships help? During the second wave of the pandemic, 68% of Canadian executives told us they planned to increase their strategic focus and investment in digital transformation. However, they were less clear on how to get there. There’s room for nimble family businesses to fill that gap through strategic alliances or divestitures, or by selling outright. On the flip side, the right alliance with another firm could support your own capabilities and propel growth. Consider what your innovative and digital expertise could mean — or where you’re lacking — and pursue opportunities accordingly.

  4. Are we making ourselves as attractive as possible? The best operations will garner the best deals. Look inward to ensure you’re doing everything you can to bolster the value of your family business. Identify your key dependency issues. Think through how a certain family member, employee or client relationship may represent a risk — and mitigate accordingly. We’re living in a world where 40% of Canadian execs are looking at bolt-on acquisitions to increase market share, and 27% have their eyes on transformative deals. Assess and address your blind spots before they hold you back.

  5. Is this the right time to exit? The pandemic has moved many people to refocus their priorities. If you’ve been struggling to see a clear path forward due to a lack of succession opportunities, this could be the time to make your move. At the start of 2021, 53% of Canadian companies said they planned to actively pursue M&A in the next 12 months. That means more than half of businesses out there could be looking for the right target — a target like you. If you’ll soon be ready to move on from the business, start identifying potential opportunities and initiate conversations now.

What’s the key takeaway for Canadian family businesses?

The market is at a unique juncture. Family businesses that use this time to ask the right questions can tap into a number of possibilities. Whether you’re on the buy side or the sell side or somewhere in between: don’t let this moment pass you by.

For more information on how EY supports family businesses and family offices, please contact us today.

Summary

The market is at a unique juncture. Family businesses that use this time to ask the right questions can tap into a number of possibilities.

About this article

By François Tellier

Canadian EY Private Strategy and Transactions Leader

Canadian EY Private Strategy and Transactions Leader and National Director of EY's Entrepreneur Of The Year program.