Martin Deschênes
Partner | CPA, CA | Financial advisory

Are you looking to stimulate the growth of your SME by acquiring another business? Now that’s an exciting project! However, in order to reap the benefits, it’s best not to skip steps and seek out the guidance of expert advisors throughout the entire process.

Do you think you know all about the business in question? Do you feel the need to act fast because you’re scared of missing out on a unique opportunity? Be careful: there could be skeletons in this business’s closet or the salesperson’s statements could be false; to find out the truth, a thorough due diligence should be performed. You wouldn’t want any nasty post-transaction surprises!

Another determining aspect of a successful transaction: the integration of the acquired business’s activities and employee engagement, because while the purchase may be complete, the work is not.

Here are five tips for success to reducing risks to a minimum and getting the most out of your investment when acquiring a business.
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1. Letter of intent to purchase

The purpose of this document is to serve as a basis for negotiations, without being a formal offer to purchase. Rather, it is a commitment between two parties to negotiate in good faith. As a buyer, you’re stating your intention to acquire the business according to certain conditions that were discussed in preliminary discussions.

The letter of intent establishes in particular:

  • The sales price and possible adjustments;
  • Assets included in the transaction and liabilities assumed;
  • Terms of payment and certain representations and warranties.

It is essential, as of this step, to properly establish the terms and conditions of the transaction. Do not under-estimate the importance of this document.

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2. Due diligence

This too is a crucial step. When properly executed, with the help of specialists, it allows you to know just exactly what you’re purchasing.

Due diligence provides you with a detailed look at the financial, tax, legal and operational aspects of the organization involved, as well as the main transaction risks.

Among other things, it helps validate information provided by the seller and protect you from unpleasant surprises. It also helps detect any of the acquired entity’s business issues and those relating to the integration of activities (obsolete computer systems, possible departure of key employees, etc.).

This verification process can certainly be demanding, but trust me when I say: all those entrepreneurs who took the time to do this step don’t regret it. Moreover, due diligence can sometimes help lower the purchase price.

3. The purchase agreement

You now have an accurate idea of the business you want to buy. You’re ready to sign a purchase agreement containing the conditions and warranties that will protect you from various risks, in particular, those detected during due diligence. For example, you can include in the agreement indemnity, confidentiality, non-solicitation and non-competition clauses.

Plan ahead: a well detailed purchase agreement prepared by an expert can help you save a lot of money and offer you adequate protection from the most significant risks.

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4. Achieving synergies

We’re not done yet! There’s still much work to be done for the transaction to yield the desired results.

As a matter of fact, you need to implement a well-prepared integration plan. Do it quickly: integration should not take more than two years to produce the expected synergies.

Make sure to properly merge the operation method and the information technologies of both businesses. Often, incompatible IT systems can be a costly failure.

Carefully analyze how things are done within the purchased company. Perhaps certain corrections need to be made, but the best practices could be deployed within your group.

You might also want to involve the people in charge of the transition as early as the due diligence step to enable them to get a better understanding of quick integration issues pertaining to the process.

5. Employee engagement

The success of your integration plan depends on your employees’ engagement. After all, they will be the ones to implement it!

Engage all of your employees by sharing your vision and the values you hold dear, in order to create one common business culture. Explain your objectives and how you intend to attain these goals.

Furthermore, provide your key employees, including those from the acquired business, with advancement opportunities. This is one of the best ways to motivate them.

The HUMAN aspect is a key factor behind every successful acquisition.

Are you thinking about acquiring a business? Don’t hesitate to contact our experts. They will be more than pleased to assist you in this major step of the growth of your business.

22 Feb 2018  |  Written by :

Mr. Deschênes is a partner at Raymond Chabot Grant Thornton. He is your expert in Transaction...

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Adviser alert–February 2018

The Grant Thornton International IFRS team has published the 2017 version of IFRSs Example Consolidated Financial Statements 2017 (hereinafter the “Example consolidated financial statements”).

The Example consolidated financial statements have been updated to reflect changes in IFRS that are effective for the year ending December 31, 2017. Further, they reflect an illustrative corporation’s decision to early adopt IFRS 15 Revenue from Contracts with Customers and Clarifications to IFRS 15. No account has been taken of any new developments after October 31, 2017.

Example consolidated financial statements – summary

The example consolidated financial statements are based on the activities and results of the illustrative corporation and its subsidiaries – a fictional consulting, service and retail entity – that has been preparing IFRS financial statements for several years.

The form and content of IFRS financial statements depend on the activities and transactions of each reporting entity. The Grant Thornton International IFRS team’s objective in preparing the example consolidated financial statements is to illustrate one possible approach to financial reporting by an entity engaging in transactions that are typical across a range of non-specialist sectors. However, as with any example, this illustration does not envisage every possible transaction and, therefore, cannot be regarded as comprehensive.

Management is responsible for the fair presentation of financial statements and, therefore, may find other approaches more appropriate for its specific circumstances.

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The property and casualty (P&C) insurance market had a turbulent year in 2017. This article takes a look at the potential impact of risks in 2018 and looks at options to minimize them.

In the second half of the year, extreme weather was widely covered in the media, and rightly so. It’s estimated the damages in the wake of hurricanes Harvey, Irma and Maria and forest fires in California could surpass US$135 billion and will exert pressure on the North-American re-insurance market.

After a flurry of insurance company mergers and acquisitions in the past five years, several transactions affected the Regroupement de cabinets de courtage en assurance in 2017.

Legislative changes

Bills 141 and 150 will likely change the business practices of insurers and market intermediaries, particularly in terms of the business relationships between brokers and issuers and the marketing of P&C insurance products. Federally, Bill C-45, on legalizing marijuana, is causing some concern with insurers.

According to MSA Research, first quarter underwriting revenues for Canadian insurers were down from the same period in 2016: the first quarter of 2017 posted a loss of $3.7M, compared with a $616.8M gain in the same period in 2016.

In recent years, favourable insurance market conditions allowed companies to renew their insurance programs somewhat informally—this may change in the future. The current insurance and re-insurance market is such that businesses face an increased potential of changes in rates, coverage and terms and conditions.

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Growing risks

The year 2017 saw the emergence of new risk exposures for businesses:

  • Cyber crimes (e.g.: the Wannacry ransomware);
  • The impact of workplace harassment (e.g. the Harvey Weinstein affair);
  • Technological innovations (e.g. artificial intelligence, blockchain, drones and driverless cars);
  • The sharing economy.

To limit the dangers of current insurance market trends and offset the potential impact of emerging risks, companies will need to adopt a more rigorous process when renewing their P&C insurance program. The process should provide for:

  1. Monitoring and understanding insurance market trends;
  2. Determining and evaluating current and developing risks;
  3. Efficiently analyzing insurance coverage and the targeted risks and determining any adjustments needed;
  4. Determining uninsured risks and implementing an mitigation action plan;
  5. Assessing the insurance program claims ratio;
  6. Undertaking an in-depth and relevant update of underwriting data;
  7. Assessing the insurance provider’s financial soundness and the quality of the insurance broker’s services;
  8. Setting out renewal objectives in terms of rates, improved coverage and service quality for both the insurer and broker;
  9. Setting a renewal strategy (negotiation or call for tender) based on defined objectives.

Implementing a rigorous renewal process will improve integrated risk management by factoring in the thoroughness required to ensure that current and developing risks are adequately reflected in the insurance program.

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The February 2018 Flash Bulletin summarizes the Exposure Draft issued by the Canadian Accounting Standards Board in September 2017 entitled Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Proposed amendments to Sections 1591, 3251 and 3856).

It is relevant to private enterprises who report under Part II of the CPA Canada Handbook – Accounting (ASPE).

This Exposure Draft will bring significant changes to the financial statements of private enterprises for 2020 fiscal years and after.

This publication is intended to inform readers about recent changes in accounting; however, it cannot deal with all aspects of the Exposure Draft. Readers are always encouraged to refer to the original publications mentioned in the articles before making any decisions.

Download the document below.