skip to content

Acquiring a business: What are buyers seeking?


With COVID-19 mostly behind us, we are starting to see a return to the normal acquisition process. A lot of virtual management meetings and pre-recorded site tours are now returning to in-person settings. The most change is not necessarily in the acquisition process, but with an increased focus on business diligence. Depending on the industry, a lot of businesses either had tailwinds or headwinds during the pandemic.

When the COVID-19 impact subsided, we started experiencing supply chain and labour disruptions, some of which still remain today. Essentially, you’re left with two to three years of trading results, which have all been tainted by some form of external factor outside of management’s control. Buyers are therefore spending a significant amount of time understanding the sustainability of earnings and the margin profile of the business, leading to extended diligence periods.

The state of the market in 2023

The Canadian mid-market remains active and robust. Credit conditions have certainly tightened, but credit is still available for good assets and accredited buyers. The focus is on really high-quality deals and assets with people moving away from riskier acquisitions or deals that require a significant amount of leverage.

Some buyers are being enticed by the prospect of finding decent deals at lower valuations. Valuations peaked in late 2021 and started coming back down 2022, with no considerable change in the last six months. Ultimately, if buyers can service the debt with stable cash flows from good quality assets, deals will continue to happen.

Lastly, private equity firms continue to have record availability of dry powder and they will look for opportunities to deploy that capital over the next few years.

Buyers are continuing to focus on the traditional themes, including:

  • An attractive business model—the seller should be able to demonstrate that the business has sustainable revenue and profit margins. There needs to be growth potential and any strategic acquirer would want to see a path for continued growth. This could include growth in a new geographical area, growth through acquisition, or expanding into complementary services and products.
  • The recent labour shortages have shown us the significance of acquiring and developing talent. Buyers are interested in seeing how good the company is in acquiring and retaining top talent. They also want to be certain that the company has a strong management team that can execute on their investment strategy.
  • A strong value proposition is the foundation of any customer relationship. A strategic buyer will ask whether the seller is executing their value proposition in the market and what they are doing to distinguish themselves from their competitors.
  • Return on investment remains as important as always. Ultimately, if you’re selling your business you need to demonstrate to the buyer that you can convert revenues into cash flows.

In today's environment, unrealistic value expectations are becoming more topical. There is usually an emotional attachment to your business, but it is very important to level set with an advisor and think about an appropriate valuation based on what businesses are trading for at this stage.

Another challenge is business performance, which may be impacted by unexpected costs or missed sales targets during diligence. Transparency is crucial during the process—making potential buyers aware of any foreseeable factors that could impact performance. This means bringing those issues up early before it influences the deal.

At the end of the day, when a buyer takes the keys to the business, they also want to know that they have sufficient working capital to push the business forward. The seller needs to be willing to come to the table and provide the financial information to support the working capital requirements—giving the buyer the capital they need to be successful.

Buyers (especially private equity firms) want to understand management’s competence and the current ownership structure. Private equity will consider the following:

  • What is the role of the owner?
  • Does the owner want to continue in the business?
  • What is the strength of management?
  • How strong is their bench?

Lastly, the number one killer of any deal is time. The longer it takes to get a deal done, the greater the chance that something can go wrong. Sellers should prepare for setbacks and ensure they can get through a robust diligence at an efficient pace.

A seller should spend adequate time with their advisor in order to present the business in the best light. Areas to consider include:

  • Undertaking a value creation process will facilitate maximizing results. This includes strategic option analysis and alignment of value drivers of what potential buyers are seeking. What can help you enhance EBITDA and the valuation multiple? Some items to think through include pricing and promotion, optimizing your product portfolio, and operational performance improvement.
  • How can you optimize your working capital? Can you incentivize customers to pay earlier, reduce your inventory of any aged items or excess inventory, and can you extend payment terms with vendors?
  • People is another critical item. Have you reviewed the organizational structure and filled all of the vacancies? You’ll need a strong management team with a clear succession plan.
  • With technology risk becoming more prevalent, you need to be able to answer the following questions regarding technology infrastructure:
    1. Do you have the appropriate tools and systems, and do they align with industry standards?
    2. Does your system provide clean, accurate, and timely reporting?
    3. Are you managing technology risk?
  • Finally, you will need to have compliance, legal, and tax issues in order before you start the process. Ensure you have an optimal tax structure for the divestment and take the time resolve all legal matters.

Let BDO guide you

Our professionals can help you through every step of the process. Whether it’s sourcing buyers, figuring out how to present your business, or negotiation, BDO can assist. Our M&A Capital, Tax Planning, Transaction Services, Financial Diligence, and Technology teams all have the expertise to provide a seamless experience for selling your business.

Reach out today to learn more about the process.

This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our privacy statement for more information on the cookies we use and how to delete or block them.

Accept and close