Flexibility, compromise and clear communication improve the transition of company ownership.
By Elisabeth Harms and Laura Wiens
Farm succession planning is a much-discussed topic in agriculture, and with good reason. Succession on the farm often involves multiple generations of a family, and conversations toe the line of where family ends and business begins.
However, these challenges are not unique to farm operations. Many independent small to medium-sized ag retail and ag retail supply businesses are family-founded and independently owned. According to the Canadian Federation of Independent Business, only about nine per cent of owners of small and medium-sized businesses have a succession plan in place.
If you’ve got a willing seller and a willing buyer, the advisor is really there to facilitate, not negotiate.
Carla Milne, business advisor with Meyers Norris Penny (MNP), cautions that if independent businesses do not have a formal succession plan, when it’s time to sell, they may miss opportunities to secure the longevity and future success in the process. To avoid this, she recommends taking a proactive approach to succession.
“Planning for succession is a mindset established in a business. It requires leadership, management and relationship planning and transition,” says Milne. “It is best to exit on your terms. Do not wait for a life event like death, illness, burnout or major economic change.”
Approaching a Sale
Milne says there are four typical routes companies can take to sell a business: family buyers, management buyers, financial buyers and industry buyers.
When you hear “industry buyer,” the recent wave of mergers and acquisitions involving global heavyweights that swept the industry in recent years may cross your mind. However, in May 2019 at Western Canada’s own Hi Tech Installations Ltd. (Hi Tech), an industry buyer transition happened, and the buyers didn’t come from international conglomerates. Rather, Hi Tech was purchased by Craig Senchuk and Joerg Zimmermann, an entrepreneurial duo with backgrounds in farming and ag business.
Senchuk, who grew up on a farm in the Swan River area of Manitoba, had previously owned agricultural and manufacturing businesses, while Zimmermann, who grew up on a farm in Southern Germany, had experience working with AGI and numerous international companies.
Prior to the purchase of Hi Tech, the pair worked together operating the business management division at Agri-Trend. In their roles, they worked to advise farm families on many business management topics, including succession planning, which allowed them to apply many of the same principles of success to their own transaction.
“The business itself wasn’t foreign to us from a fundamental standpoint,” says Senchuk. “We were in the market to buy a business and we were immediately interested in Hi Tech. What really attracted us to the company were its principles and its reputation.”
Making a Successful Sale
Senchuk says the sale process started with a business broker who set up a meeting between Senchuk, Zimmermann, and Evan and Sara Michaud, the founding owners of Hi Tech Installations.
During the meetings, Senchuk says they talked about Hi Tech’s core values and company culture, giving Senchuk and Zimmermann the opportunity to get to know Hi Tech a little bit better.
"We had a meeting with the Michauds back in November 2018, and that meeting went really well,” says Senchuk. “Building trust at the beginning was very important between us and the Michauds. I think we both felt that we had a really good fit right off the bat, and then kind of took it from there.”
In the context of a complex business transaction, taking off meant many subsequent meetings with lawyers, accountants and other advisors from both sides to make sure each side met its due diligence.
“One of the biggest things we’ve learned from this experience is that transactions of this size and complexity take time. Patience and compromise are really important to both parties,” says Zimmermann.
As well, because there are so many professionals involved in this kind of deal, Zimmermann says it is important for both the selling and buying side of the transaction to communicate their positions clearly.
“One piece of advice I have for both sides, buyers and sellers, is to let your advisors know where you stand,” says Zimmermann. “If you’ve got a willing seller and a willing buyer, the advisor is really there to facilitate, not negotiate. I look at it as ‘I want to buy this business. Don’t find a way for me not to buy it.’”
I think in the transition period, it is important for the buyer to respect what is there. The seller should also realize that new owners will want to make changes and add their own flavour.
Carrying on a Culture
Since the sale was finalized, Senchuk and Zimmermann say they have been fortunate to split the workload that comes with acquiring a new business between the two of them, making for a smoother transition. As well, the pair say it was beneficial to have the Michauds stay on in an advisory role for a time after the sale.
“Working with Evan and Sara has allowed us to access a lot of local knowledge,” says Senchuk. “I think in the transition period, it is important for the buyer to respect what is there. The seller should also realize that new owners will want to make changes and add their own flavour.”
Having the outgoing and incoming owners work together is one way to help an employee team adjust to the new owners, and help the new owners learn the company culture. Since this is not always possible, Milne recommends documenting company culture in their succession planning.
“Even though it seems like it’s intangible, it’s important to document your culture,” she says. “And culture is really about your team, right? So, you can involve your team in that process."
Milne also advises potential sellers to gradually start removing themselves from operational activities to see how the team does without them, as she says most buyers rely on strong management as they come on board. If these experiences don’t go well, Milne then recommends a business owner spend more time developing their team and preparing them for succession before looking to sell.
“Develop your team to the point where the business can function without you present,” she says. “Succession planning needs to be worked on each and every year, with short-term and long-term business success targets established.”
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