Why are companies reluctant to consider new ideas that could save their companies millions of dollars? Is it the risk of looking bad for not having found these ideas before or is it complacency?

Here are my initial thoughts, but we will run with this theme this week - CFOs and their Risk Appetite: 

1. Fear...the fear of looking bad. If any decision maker or an individual who can influence the decision perceives any personal risk he/she will kill it. The culture of the organization and the relationship between the decision maker and his/her boss/peers can definitely come into play here. 
2. Complacency...without any incentive to change, why do anything new/different? 
3. And arrogance...I am the smartest guy/gal in the room and anything I have not thought of isn't worth my time. At the group level, we are the smartest/best in the business so we are already doing things the best. You get the idea...

Jacoline Loewen 416 662 1930 Author of Money Magnet. 

Jacoline Loewen   See Jacoline on BNN, The Pitch  Author of Money Magnet Director, Crosbie Co.
Crosbie & Co.
150 King Street West
Toronto, ON
M5H 1J9
416 362 7726

How can CFOs lengthen the average tenure of 18 months?

Many lower-level employees constantly make recommendations to improve the business -- and that is how they get promoted. Some people make recommendations, but these suggestions fall on deaf or antagonistic ears. 

How to get the benefits? 

To keep away from a general management textbook shelf, I think the bigger issue is the fact that we train people in sales, accounting, software development, and other vertical skills -- and we under-train in horizontal change methods, technologies, training and techniques. Most change, in the "millions" category require changes across organizational line, require changes in IT systems, and require a project management skill-set within a repeatable change methodology or system. 

We are Business Transformation professionals at Crosbie and Company, and "change" is our business. Until companies put "continuous change" at the forefront of everyday behavior, and train their employees in change (we call it Transformation), it will remain a hit or miss activity. 

CFOs need to be outspoken advocates for Business Transformation, or they will be doomed to a 18 month tenure as investors will keep searching for leaders to get them into the top quartile of industry performance.


See Jacoline Loewen on BNN, The Pitch

Jacoline Loewen, Director,   See Jacoline on BNN, The Pitch  Author of Money Magnet Director, Crosbie Co.
Crosbie & Co.
150 King Street West
Toronto, ON
M5H 1J9
416 362 7726

As idle as a painted ship upon a painted ocean - Dennis Tobin Sums Up the Market

If you are selling your company over the next few years, the market is sitting still, as Dennis Tobin, Blaney and McMurtry,  puts it, the Ancient Mariner poem sums up the markets with the description of that painted ship on the painted sea.

What the CVCA conference did this year was forecast the market for the next few years.

Dennis Tobin, a VC and family business lawyer at Blaney and McMurtry, gives a good overview of his thoughts on the CVCA Conference.

"In the realm of private company succession planning, over half of Canadian family business owners are not expecting an intra-family next generation transfer and a third are hoping to attract a private equity investor (PwC Capital Markets Flash, January 2012). This transition is already happening. Over a quarter of family businesses plan to embark on a transition within the next five years. Sellers need to understand where they are in the market, what the prices are like and what options they have. The current trends will impact those options."

Dennis points out that the transactions are changing and the prices are being impacted.

"There are some less obvious factors in the market putting downward pressure on prices such as the need by private equity firms to turn over portfolio companies and some more mundane reasons such as company earnings that have not yet recovered to 2007 levels.

"In order to best position themselves for a potential sale, sellers should evaluate their options: transitioning through family succession or a management team, bringing in a strategic investor or approaching a strategic buyer. One of the propositions put forward by the organizers of the CVCA conference was that “active management by highly skilled private investors is the secret sauce. These investors jump right into their portfolio companies, working alongside management to truly transform these businesses”.

""Companies looking to transition within the next five years should start by cleaning up their books well in advance of a planned transaction. Failure to do so could at best defer closing and at worst uncover surprises that would push investors to walk away from the deal. Private businesses should also make sure they qualify for the capital gains exemption to maximize return on the sale of the business. Certain assets in the balance sheet could disqualify business owners from claiming the capital gains exemption. Complex corporate structures can also deter potential investors and buyers. Simplifying the ownership structure can take time and should be dealt with well in advance of seeking a transaction.

"Sellers looking for an exit should also spend less time in the business and more time on the business by focusing on maximizing value, prioritizing goals and increasing profit margins. Sellers should market their business as a target by determining who needs their business from a competitive, market and strategic partner standpoint. Strategic buyers are willing to pay premiums and premiums can be justified when sellers are offering exposure to new markets, increased market share, economies of scale and the addition of capabilities that leverage much larger existing opportunities for the buyer.

"Sellers should also look at new markets for potential buyers. For every dollar on the sidelines in Canada, there are many more in the USA. Foreign interest is also increasing for cash rich investors looking for safe or strategic investments in Canada, especially in the natural resources and real estate sectors.

Perhaps while the venture capital and private equity markets are in the doldrums, owners who want to grow or exit their businesses should check their charts, clean their decks and fix their sails, as both fair winds and gales are in their future. In the meantime,

Day after day, day after day,

We stuck, nor breath nor motion;

As idle as a painted ship

Upon a painted ocean.

-Coleridge-Rime of the Ancient Mariner

See Dennis Tobin http://www.lexology.com/23434/author/Dennis_Tobin/http://www.lexology.com/23434/author/Dennis_Tobin/

Return of the Mega Deals? Asks Crosbie and Company

The Investment Bank, Crosbie and Company, known for excelling at Mergers and Acquisitions work share their views on the invesmtnet activity seen by Canadian business in the past quarter.

Crosbie and Company Discuss Canadian Activity

The Canadian M&A market posted a decline in total announced transactions this quarter, which was primarily driven by a slowdown in activity in both the Oil & Gas and Metals & Minerals sectors.  There were a total of 222 transactions announced in Q2, a 14% reduction in activity from the 259 transactions announced in Q1.  The total value of transactions declined 34% this quarter to $33.9 billion compared to the above average $51.3 billion in the previous quarter.

A few notable items in Q2 included:

§  Despite the decline in M&A activity this quarter off of slower commodity sector activity, the balance of the Canadian M&A market was relatively unchanged from the prior quarter.

§  Cross-border activity was a very prominent component of Canadian M&A this quarter, with 9 of the 10 largest deals in the quarter having a cross-border component.  Canadian companies acquired foreign companies in 6 of these transactions.

§  For the fourth time in five quarters Real Estate has been the most active sector with Oil & Gas being the second most active; combined both accounted for 43% of total quarterly activity.

§  Mega-deal activity returned to historical levels this quarter, with 7 deals announced compared to the 14 announced last quarter, a four year high.

For further details, please see our press release andM&A report which are available on our website at:

http://www.crosbieco.com/pdf/press_release/PR_Q212.pdf

http://www.crosbieco.com/pdf/ma/MA_Q212.pdf

Jacoline Loewen, Director,   See Jacoline on BNN, The Pitch  Author of Money Magnet Director, Crosbie Co.
Crosbie & Co.
150 King Street West
Toronto, ON
M5H 1J9
416 362 7726

Please contact Colin Walker 

Do Business Owners have a Bias Against Risk?

Public market companies have their knuckles rapped by Mark Carney for sitting on their excess cash and not putting it at risk in order to grow their businesses. An MBA finance class would agree-- that unused capital indicates a lazy balance sheet.

But does this apply to private companies too? 

Do they need to risk their capital too? 

Risk and the Private Business

Here’s a quick test for you. Put yourself in the shoes of an owner of a business and assess your appetite for risk.

Let’s say you are the owner of a medical device company and your management team comes to you and wants to launch a new product. Your team has done the analysis and it would cost $5M to bring to market, and the expected returns would be significantly greater. As the owner, you know that $5M will come directly from your own pocket, your credit line at the bank and the amount of money you can take out of the business for retirement.

The other option is to carry on with the normal business, which is going at a slight growth rate with the market stable enough.

Here is how you, as the owner, might weigh the risks: “Right now, I’m profitable. If all goes well, the new product will grow my $10M company to $30M, with a cash flow of $1M. If it does not go well, I’m in the hole for $5M and it will take me five years to break even and get back to where I am now.”

Pass!

Jacoline Loewen   See Jacoline on BNN, The Pitch  Author of Money Magnet Director, Crosbie Co.
Crosbie & Co.
150 King Street West
Toronto, ON
M5H 1J9
416 362 7726