Private Company Mergers and Acquisitions - Niagara Falls
Selling a business may be the most important decision of an owner-entrepreneur's career. Businesses typically represent most of the entrepreneur’s wealth and selling it is usually a once-in-a-lifetime event. If it is mishandled, serious value is lost. In the broad category of Mergers and Acquisitions ("M&A") there are many nuances that differentiate private company transactions from public company transactions. This site provides straightforward answers to questions about valuation, buying or selling a private business, and how the M&A process works.
Derek van der Plaat, MBA, CFA has over 20 years of corporate finance and M&A experience, both as an advisor and as an owner-entrepreneur.Derek started his career at CIBC M&A where clients included Canadian Pacific, Allied Signal, Praxair, GoodYear Tires, and Planters Peanuts as well as many owner-operated private companies. Operational leadership experience includes co-founding Moontaxi Media Inc., a company focused on digital media streaming and downloads.
In 2002, as a result of a partnership with Microsoft’s Windows Media division, Moontaxi.com became a top ten internet radio destination (as measured by Arbitron). In 2003 Moontaxi launched the Puretracks music download service, the first in Canada to legally sell music online in association with the recording industry and leading distribution partners such as TELUS, MSN and AOL. Moontaxi secured financing from strategic investors such as Universal Music, Entertainment One and Standard Broadcasting.
Derek sold his interest in Moontaxi to a strategic acquirer in 2006 and subsequently formed DVP Capital Management Inc. There he completed numerous financings and acquisitions in the mobile content, marketing and online game sectors as an operator, shareholder and board member.
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Additional Information
Enghouse was quite a bit more aggressive than Constellation and Descartes, of the 16 acquisitions with disclosed financial metrics completed by Enghouse, five were of a size greater than 10% of the size of Enghouse.The average size of the acquisitions was 12.7% of the size of Enghouse. The median target acquisition price paid was 0.9 times revenues and we were not able to deduce a meaningful EBITDA multiple.
Finally, of the 21 acquisitions with disclosed financial metrics completed by OpenText, again, only two were of a size greater than 10% of the size of OpenText. The average size of the acquisitions, taking out the two bigger ones, was 2.5% of the size of OpenText. The median target acquisition price paid was 1.2 times revenues and the EBITDA multiple was not meaningful as a number of the targets were incurring losses at the time of the acquisition.
From the acquisitions with financial disclosure, we know that 82 acquisitions cost approximately $2.7 billion. If we assume the acquisitions without financial disclosure were completed at each company’s average acquisition metrics, then this would add another $2.5 billion to the cost. Based on these assumptions, a total of $5.2 billion was spent on acquisitions and $8.6 billion in value was created, suggesting the acquisition strategies created tremendous value. While this is not perfect math, the simple truth is that when you look at the share price, each company has outperformed the TSX by a wide margin over the last 8 years.
There are many ways to study acquisition performance, from large worldwide/all industries studies to sector and geography specific studies. While this data set is small, what we have observed is that the profiled companies have completed many small acquisitions. There are a few bigger ones, but we would not call them transformational – those are the hard ones. What we see here are a series of small, formulaic/cookie cutter acquisitions, rigorously held to reasonable valuation and payment terms. Integrating acquisitions is hard but what this overview tells us is that if you establish strict parameters around size and value and you do enough of them, you get pretty good at it.
We would market this business as having recurring revenues but to pure SaaS companies this would dilute them. Certain consulting businesses won’t have the appetite or capital on hand to invest in the marketing that the SaaS business needs. Lack of focus in the business model will reduce buyer interest and hence value.
So, what does produce a headline grabbing valuation? Simply put, you have to be viewed as being on a path to achieve a leading position in a new segment that is expected to be enormous. Rare, but we do have a number of Canadian technology sector examples including Hootsuite in social media monitoring, D2L in personalized learning solutions, Shopify in online stores and Wattpad, creating a brand new segment, in a community of readers and writers.
Product and Services
Selling a business may be the most important decision of an owner-entrepreneur's career. Businesses typically represent most of the entrepreneur’s wealth and selling it is usually a once-in-a-lifetime event.
Languages Spoken
English
Payment Options
Visa,Paypal,Master Card,Cash
Year Established
2014
