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Selling your business is a science, and an art

Interior Heavy Equipment Operator School Ltd. trains people to operate heavy machinery.

BERNARDO DE NIZ/BLOOMBERG NEWS

The British Columbia-based equipment-training company had a lot going for it back in 2009, except for one thing – a buyer.

Interior Heavy Equipment Operator School Ltd. of Winfield, B.C., which trains workers on big trucks and giant mining and logging machinery, started in 2005 and had grown to about a dozen employees, with three instructors. Its founder wanted to sell, but that wasn't easy in 2009; just months before, the entire global economy had nearly collapsed.

Business transition – finding a new owner, in other words – is one of the biggest challenges facing Canada's small and medium-sized enterprises.

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"The demographic reality of Canada suggests that succession planning is no longer just a micro-issue that affects the businesses involved, but also, increasingly, a macroeconomic issue," says Benjamin Tal, deputy chief economist at CIBC World Markets Inc.

By the end of this decade, 350,000 business owners are projected to be older than 55 – with a lot of businesses potentially for sale, Mr. Tal says.

So how does a company like Interior Heavy Equipment arrange its transition? It turned to Vancouver-based Sequoia Mergers & Acquisitions Corp., which specializes in finding buyers for privately owned, mid-market firms.

"We sold IHE in 2010," says Brent Cunningham, partner at Sequoia. "Those were tough times. The banks had tightened up and there was no credit. You pretty much had to find cash buyers."

For this sale, Mr. Cunningham found an entrepreneur who had built businesses in food processing, cold storage and real estate. "He was looking for a fourth opportunity to take a small business and grow it," he says.

But finding a buyer was only the first step in a longer journey. To make IHE viable for additional growth, the company's buyer persuaded its chief financial officer, Mike Hansen, to buy into the firm and stay on.

"It gave them the combination of the older majority partner who has the successful track record and the younger guy who has the energy and smarts to pull it all together," Mr. Cunningham says. Mr. Hansen became IHE's president.

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Then, in 2015, the owners of IHE came back to Sequoia, seeking to sell the business again. The second owners had expanded the business and saw the opportunity to grow even more with additional equity partners.

"It had grown five times over. They had put in millions in equipment and staff and technology and opened two new locations, one in Alberta and one in B.C.," Mr. Cunningham says.

Within seven months, Sequoia secured seven letters of intent, which allowed them and their client IHE to choose the best fit.

Nevertheless, even when it's the second time around, selling a business is not easy. "There are lots of potholes along the way, some of which you can anticipate and some of which come up without your knowledge, and which can really derail a deal," he says.

"You need a thick skin to withstand the potential for a deal to collapse and also to be able to bring it back on track."

Mr. Cunningham says he spends a lot of time weeding out potential buyers, so the remaining candidates will match more closely with the sellers' intentions. In addition, he makes sure that the sellers are 100 per cent motivated to sell; he doesn't want second thoughts or long-lost relatives coming in at the last minute to make offers.

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One of the other roles a successful broker plays is to create some competition among potential buyers. It's not unlike the work a real estate agent might do to encourage demand for a property.

Mr. Cunningham doesn't look for a typical potential buyer for the businesses he puts up for sale; rather he concentrates on building a market for the sale.

Every market is different. "We sell either to larger companies or to private equity firms. We try to create a market that's unique to every asset that we're selling," Mr. Cunningham says. To drum up business, Sequoia taps into a network of about 1,800 private equity firms.

"Our criteria for a sale would be: Is the business profitable? Is it scalable? Can we create a large enough market for it? And of course, are the owners people we can trust and respect – that's what gets us up in the morning in the end," he says.

With what Mr. Cunningham calls "the luxury of choice," IHE chose a Vancouver-based private equity outfit called Headwater Equity Partners as the new owner, with Mr. Hansen staying on and maintaining his own stake. The first, second and new owners of IHE – and Sequoia – all say they are happy with the results.

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