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Selling a business is a high-stakes game for owners

Trent Security's location in Peterborough, Ont.

After spending more than three decades building a successful home-security company in Peterborough, Ont., Martin Wormald was ready to sell his business. The challenge was figuring out how to go about it.

Trent Security Systems Ltd., which Mr. Wormald founded and owned, had 23 employees, many of whom had been with the company for years. While it had, and continues to enjoy, a strong reputation in the Peterborough area, Mr. Wormald simply figured it was time to do something else.

"I had seen too many people die early and not enjoy the fruits of their labours," says Mr. Wormald, now 65, who sold the company two years ago. "I decided it was time."

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He also decided that he would need help in preparing, marketing and selling his company.

"The electronic security industry is unique. We monitor alarms, have 24-hour staff and collect revenues on a recurring basis. It takes someone in the industry to understand or get the value of a security company, so I was sure I needed to sell to someone who was in the business already," Mr. Wormald says.

Enter Victor Harding. Since 2009 his Toronto-based company, Harding Security Services Inc., has specialized in brokering the sales of security firms. He markets his services mostly through home-security-industry conferences and trade publications.

The security alarm businesses that Mr. Harding works with are usually worth between $500,000 and $5-million. He ended up brokering the sale of Mr. Wormald's firm to API Alarm Inc., which does business in Canada and the United States.

API met Mr. Wormald's conditions – that, after the sale, the Trent Security name would remain in Peterborough and that most, if not all, of his employees would remain with the company.

"They took the staff on at their existing salaries. Everybody who transitioned to the new company is still there two years later," Mr. Wormald says. "That was extremely important to me. Peterborough is a small town and you run into your [former] customers and neighbours all the time."

A sale of a specialized company to another firm in the same sector might sound straightforward, but that's not necessarily so, Mr. Harding says.

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"Being a business broker or intermediary is not for the weak-minded. Each business sale takes a lot of time, and you only close about 50 to 60 per cent of your deals," he explains. "Selling even the smallest company can take a lot of time – four to six months at a minimum and up to two years."

Mr. Harding says that a common impression is that brokers have a hard time dealing with sellers who have trouble letting go of a successful business they have built. But his experience – with Mr. Wormald and others – has been different, he says.

Contrary to conventional wisdom, he says, most owners do consider the eventual sale of their company. They might not know how to go about it, however.

The challenges he addresses as a broker include the fact that sellers "are often too close to the business to negotiate properly," he says. "Most owners don't know what their business is really worth."

They also don't understand the sales process. "They don't know how to present their business to potential buyers. They haven't got the time or knowledge to contact all the potential buyers, and if they carry out the process themselves, they will take themselves away from the process of running their business," Mr. Harding says.

Mr. Wormald says that his headache while Mr. Harding was negotiating on his behalf was "keeping the deal quiet. It was the most amount of work."

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Secrecy was important to the buyer, API. It was also important to Mr. Wormald – he worried that staff morale would plummet if they heard, and that customers might lose confidence in Trent and switch to rival firms.

"I could only tell my general manager, who had to be involved in the sale process, and my bookkeeper," he says.

In scouting potential buyers, Mr. Harding says it's important to distinguish between a "stand alone" buyer, who simply wants to buy out a partner or to acquire a business for its profitability, and a strategic buyer, who is already in the same sector and is building a larger business or a network.

API was a strategic buyer, Mr. Harding says. Even though the company retained almost all of Trent's staff, "strategic buyers can and will nearly always be able to pay more for the same business because they can get post-acquisition cost reductions," he adds. For example, the local company can take advantage of its larger buyer's marketing and administration facilities.

The result? Trent is still thriving in the Peterborough area under its new owners. And as for Mr. Wormald, "I have taken up photography and I'm about to go on a trip out West."

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