Entrepreneurs are now growing their businesses through mergers and acquisitions to address the labor shortage. This is what emerges from a new BDC study entitled Business acquisition: a strategy for growth and published this Tuesday.
The factors motivating business acquisitions have changed with the pandemic. Whereas before, entrepreneurs mainly wanted to gain new customers, the motivation to have new talent jumped to 30%, compared to 20% before COVID-19, while the motivation to access new technologies increased to 25%, against 14%.
“When I saw the results of the study, that’s what surprised me the most,” said Pierre Cléroux, chief economist of the Business Development Bank of Canada (BDC) in an interview. This is a new strategy that we have not thought of against the labor shortage, but which entrepreneurs have thought of. ”
PHOTO ROBERT SKINNER, PRESS ARCHIVES
Pierre Cléroux, Chief Economist of the Business Development Bank of Canada
The labor shortage is decried every day as companies lack the resources to meet the demand for services and products. However, the aging of entrepreneurs – 12% are over 65 – means that a growing number of businesses will be for sale.
There are therefore opportunities to grow, find a company that has already invested in technology, acquire talent and make economies of scale.
When you’re bigger, you don’t need two HR and accounting departments. Also, often, we will look for a company in a slightly different market, which will complement the market we have.
Pierre Cléroux, Chief Economist of the BDC
Buy foreign companies
As BDC has observed in the past, the number of Canadian companies buying from foreign companies is higher than the other way around. Between 2016 and 2020, almost double the number of Canadian SMEs bought foreign companies. Quebec SMEs buy companies in other provinces and in the United States to have complementary markets.
“There is a big myth that we get a lot of businesses bought and that we don’t do the opposite. This is because when an American company comes to buy one of our flagships, we talk about it a lot in the media, notes the chief economist of the BDC. While we see a lot of our customers buying companies in the United States, but that does not make the newspapers, here, at least. ”
Grow faster by acquisition
The volume and value of mergers and acquisitions under US $ 100 million rebounded rapidly following the Grand Containment in the second quarter of 2020, and deal volume remains high, the study says.
The number of mergers and acquisitions has increased in sectors benefiting from the pandemic, including healthcare, which has risen from 7% to 19%, as well as information and communication technologies (ICT ), which jumped from 8% to 15%.
The results also show that entrepreneurs who grow their businesses through acquisition are twice as likely to experience above-average sales growth for their industry than those who choose to do it naturally.
It is for this reason that the companies Mecfor, from Saguenay – Lac-Saint-Jean, and Advanced Dynamics, from Saint-Bruno-de-Montarville, merged to form EPIQ Machinerie last August.
“The goal was to grow bigger and become a major aluminum player in North America. What also accelerated the merger is that our partner has a factory in India, a manufacturing capacity which allows to increase the manufacturing volume ”, relates in an interview Éloïse Harvey, CEO of EPIQ Machinerie.
“The labor shortage was not the reason for leaving, but now it has become an important argument,” she concludes.