Wealth Management

Voted #6 on Top 100 Family Business influencer on Wealth, Legacy, Finance and Investments: Jacoline Loewen My Amazon Authors' page Twitter:@ jacolineloewen Linkedin: Jacoline Loewen Profile

August 21, 2013

Sound business growth is good for everyone - even Mark Carney would agree.

By: Jacoline Loewen, EMDA Director, Director of Crosbie & Company Inc.

Public market companies had 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 or your credit line at the bank, and depending on how it goes, might even affect 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 within a relatively stable market. 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.” 
No thanks - Pass!

A Bias Against Risk

You can understand why so many SMEs are growing at a low rate because they believe their business is “good enough”. Their revenues are fulfilling the owner’s lifestyle and they are a manageable size. Growth in revenues of a private company depends on the owner and their appetite for risk.
In public and larger corporations, overconfidence is a natural bias in managers. In stark comparison, private
companies’ lack of risk is more prevalent because the money is coming directly from the owners’ own pocket. The profit foregone by passing on the new product is not seen to be drastic, in the example above, it was under $10M. Yet, these decisions to push back from business expansion risk are being played out across many owner managed firms in Canada and collectively this has a larger impact on the economy.
Owners make hundreds of these decisions about their risk appetite, often alone. The penalty to the business owner and their company with this low risk vs. reward bias is that the company ends up with underinvestment and fails to achieve financial performance. The impact will become evident at the time of sale with a weaker retirement fund for the business owner. In the end their poor risk appetite will reduce their potential lifetime earnings.

Build a Company Approach to Risk

A business owner interested in improving the quality of risk may want to borrow a few best practices from private equity.
First, the business owner can ask how much risk they are prepared to carry on their own. Family business owners in particular, can be vague on this key point, and it freezes their team and discourages them from seeking new opportunities. Key personnel may even leave the company. The business owner can draw on the expertise of an Exempt Market Dealer (EMD) who is an expert in risk and can work with the owner and the CFO (if there is one) to manage and reduce their risk bias.
Retooling how to assess risk can help a company’s revenues increase and take pressure off the owner.

Size of Investment

The first place to begin to improve risk assessment is by size of project. Owners and their CEOs who look at the projects requiring larger investments will naturally have a bias against risk. Their job, and the company’s performance, will be impacted if the project goes awry.
In contrast, the middle level of the business will be taking smaller risk decisions, which on their own do not risk the financial health of the company. In fact, managers at this mid-level tend to err on the side of risk aversion too. All across the company, the growth is being held back.

Portfolio of Risk

The company CFO and senior management can work with an EMD to assemble an overview of the portfolio of risk decisions being proposed and made across the business. The individual small investment decisions can then be pooled and the discount rates applied will be far more realistic. For investments under 5% of capital, a lower discount rate can be used and management can be confidently encouraged to work with a higher level of risk.

Sensible Appetite for Risk

The EMD can assess what causes bias and will look at how the company weeds out good projects from too risky ones. They will assess if the incentive program rewards the people within the business for the right decisions. The right EMD is a valuable resource in risk management for the ambitious owner, and of course can be a valuable partner in raising the capital needed to support taking those wise risks.

Set a Process for Risk

Have a time and place to invite senior management to put up a project idea and ask them to describe the project and potential returns. Then get them to do a Scenario B but increase the risk of the project. If possible, try for three or four scenarios with different risks.
Scenarios should not be an easy percentage increase, but should include additional costs such as production
along with sales force considerations, expected market penetration rates and brand impact. Have the manager give an analysis of the best outcome and worst flop for each scenario. By pushing for the highest potential upside, risk can be made more tangible and achievable. The process will develop the skills of the team to make better investments in projects with higher returns. Scenario planning risk analysis will be more developed at the management level.

The Risk of Sole Ownership

Being the sole decision-maker, with the bulk of ownership, raises the risk profile of the business. What would happen if the owner got hit by the proverbial bus? By understanding how to spread the risk, the owner, and his/her business would not need to die too. The family and employees might appreciate that spread of the risk!
A manufacturing company’s CEO was happily engrossed by his business and making a great deal of money. Inspired by a speech by Apple founder Steve Jobs, his dream became to grow the company more. This CEO knew that he had the drive but he worried about putting so much of his personal money at stake. He could not afford to take the risk, but nor could he go to the public markets at that stage. To help his company evolve, the CEO sold 75% of the company’s shares to private equity partners.
They helped build up the staff, create systems, and identify acquisitions. Ironically, his 25% share ownership ended up giving him more financial return than if he had kept 100% to himself. How incredibly satisfying when the difficult path turns out also to be the best one! Of course, if you’re following Steve Jobs’ advice you also recall his risks vs.reward for growing Apple in the early years—Jobs may have lost his spot at Apple for a decade, but he says the company made it through that period due to the private equity financial partners in place.

Private Equity Reduces Risk

For the company owner who has an advisory board or their EMD advising them they are too risk averse, they might weigh up the benefits of bringing on board a private equity partner.
These financial experts know risk assessment and understand the psychology of managers and owners. Their
business is to analyze the net present value of investments relative to the risk, but in addition, private equity works within the behaviors of owners and their teams and are familiar with the capital-allocation and evaluation process.
Private equity partners will be lured to the possibility of growth. They catch a glimpse of the big fish in the dark water and appreciate the gleam of its scales; they will pick up the harpoon and take on the struggle, bleeding from holding the line, facing unbelievable adversity to bring home the fish others can only admire from the shoreline.
Remember that medical device company discussed at the beginning of the article? They decided on private equity partners and his EMD encouraged him to fess up to the conservative nature of his personal and financial goals.
“I built this business in my garage and now it has to fly without just me. Let’s get in partners and share the risk.”
In the end he got enough cash off the table to cover his retirement and compensate for all the hungry years. But he was still able to stay around to enjoy the new growth with the partners who brought valuable new skills—vision, contacts, and patient capital through the storm.

Decrease Ownership But Gain Growth

The business owner sets the risk by the amount of shares they sell to a private equity firm and the EMD is an expert on assessing the value of the sale of shares. It is vital to realize that you control the level of engagement and you have options – you can sell:
• 100% or 90% and walk away from the company. By selling 90%, you can keep shares and get some upside to the new ownership.
• 75% and keep some control but benefit from the skills and Herculean effort put in by your new partners.
• 30% and take on a minority shareholder—but you cannot expect these partners to be seriously hands-on
for that amount, advisory at best.
Private equity partners will not be motivated to do a great deal of heavy lifting for just 30% of the rewards. Private companies appreciate that the more ownership is shared by the investor, the more effort they’ll make to help build revenues.
When it is the owner’s money being put at risk, usually the potential loss outweighs the potential rewards.
Sole ownership results in a bias against risk, yet for the owner, to retire with more wealth, the winners have shown that risk is required.
Sharing the risk, whether by growing robust risk processes and practices with an EMD and running it with the existing management team, or bringing in private equity partners, both will improve your company’s ability to grow.
Sound growth is good for everyone - even Mark Carney would agree.

Published in the Exempt Market Dealers's magazine
Jacoline Loewen
Director, Crosbie
416 362 1709

Owners underestimate the effort needed to prepare a company for ownership succession

Family business owners who are thinking about selling their companies and want to tilt the process to their advantage should start planning immediately.
“One reason our family business had a successful succession was because we started the process early,” says Laura McNally, part of the third generation at McNally International Inc., a leading Canadian tunneling and marine contractor.
Ms. McNally says her father and uncle decided to bring in an outside adviser and embrace the creation of a family forum to plan for succession. One of the tools introduced was a “three circle” decision-making model that directed three questions: Is this a decision for the family? Is it for the shareholder? Or is it a challenge for management? Each circle involved different stakeholders, which added complexity to the process, but it worked.
Even though the third-generation family employees were not shareholders, it was decided that it would be sensible to include them in ownership transition discussions because they held important positions in the company. As Ms. McNally’s father and uncle started to step back from day-to-day operations, they needed a plan to do it in an orderly way. Ms. McNally played a key role as change agent working closely with other senior managers.
Jacoline Loewen
Director, Crosbie416 362 1709

Crosbie on Useful Succession Strategies - Sell Your Business the Right Way

Useful podcast for CFA credits– Crosbie on Succession with Colin W. Walker and Richard Betsalel.
The largest percentage of an entrepreneur’s wealth is often concentrated in his or her business. Help clients identify opportunities for the partial or complete monetization or sale of their business. Gain the advantage of differentiating yourself in the eye of the client from other money managers by getting involved early in the succession planning process.

In this webcast presentation, the speakers discuss:
What is the market size in Canada for the number of entrepreneurs with viable businesses?
  • Identifying the primary ways to monetize or dispose of part or all of a business, including: sell to a third party, pass to the next generation, or sell to management
  • Strategies to be used when meeting with clients in order to obtain the relevant facts
  • What are the valuation parameters for private businesses? How an estate freeze, trusts, and life insurance may be utilized during the succession planning?
0.5 CE (including 0 SER) 


Director, Crosbie
416 362 1709

July 30, 2013

M&A is often characterized by incomplete if not irrational thinking

The Globe and Mail featured an article on mergers and acquisitions with Canadian companies and a professor from Wilfred Laurier. It is worth a read:
There are many reasons for companies to acquire another business and merge it with their own. One reason that companies needing the new, new thing is to use acquisitions as a substitute for their own R&D.For example, Vancouver-based Flickr, a company offering a photo-sharing application, was acquired by Yahoo Inc. for the reported sum of $35 million. Although Yahoo has in-house R&D, they recognized that by acquiring unique technologies of startups similar to Flickr, it can build market share quickly.The objective for the acquisition of smaller companies set by Yahoo in the Flickr case, or by other larger firms such as Google or Blackberry, has been carefully defined. John Banks teaches MBA students about M&A at Waterloo, Ont.’s Wilfrid Laurier University, and he reinforces the importance of identifying the purpose of buying a business.“Regardless of how attractive the deal price or fortuitous the opportunity, it is essential that the impact the acquisition is intended to have on the firm’s strategic direction be both understood and realistic for the transaction to be truly successful,” explains John Banks.Companies that use the M&A process to supplement their R&D must have access to rigorous corporate finance skills in order to be true to their mandate.  The assessment needs to be especially meticulous since research shows that this particular aspect of M&A is often characterized by incomplete if not irrational thinking,” says Banks.A smaller firm is often attractive as an acquisition target because it can have the flexibility of a speed boat that manoeuvers rapidly around larger ships. Amar Varma, founder of Xtreme Labs – which provides mobile experiences to firms – and who mentored Rypple and its acquisition by Salesforce, says, “There is the ability for a small company to be nimble and to not be hampered by bureaucracy. They can do R&D at a quicker pace and without legacy products.”
 read more...
Jacoline Loewen is a director at Crosbiewhich focuses on succession advice for family businesses and closely held small to medium-sized enterprises. Crosbie develops customized strategies, particularly in relation to M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter@jacolineloewen.
Follow @GlobeSmallBiz 

July 29, 2013

Successful leaders can sow the seeds for the downfall of a family business

Family business can sound perfect but the patriarch can become an unchallenged tyrant without them realizing the level of their own power. Harvard Business Review has a terrific article on this topic by Josh Baron and Rob Lachenauer :

Sometimes it's the most successful leaders who sow the seeds for the downfall of a family business.
Carl was one of the most talented leaders of his generation. When he took over the family business, it was a struggling $10 million automotive parts distributor. Now after thirty years of being at the helm, Carl has developed a $2 billion company that is a leader in logistical services to hospitals in Europe, and also owns four other distribution businesses. At one point, Carl had 48 direct reports and had personally hired each one. At the same time, he cared deeply about his family and made sure that everyone was well taken care of.
But there was a darker side to Carl's success.
Although his first act was one of the best ever, he became a "problem patriarch," a very hard-driving alpha leader who hired superb talent within the family and the business — and then consistently undermined that talent.
He drove his sister out of the company by placing her in a succession of dead-end jobs. His uncle resigned from the board saying that he wouldn't be part of a "paper board," in which Carl effectively made all the key decisions. Carl responded by maneuvering to buy most of his uncle's shares. In the process, he created a leadership vacuum that threatened the very legacy he had worked so hard to build. Read more.

Jacoline Loewen is a director at Crosbie, which focuses on succession advice for family businesses and closely held small to medium-sized enterprises. Crosbie develops customized strategies, particularly in relation to M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on @jacolineloewen and @crosbiecompany

July 8, 2013

PE Hub on Mergers and Acquisitions Renaissance - Colin W. Walker

For those of you interested in what is happening in the Mergers and Acquisitions market here in Canada, Kirk Falconer at PE Hub has a very good article posted on the Thomson Reuter website.

When will the highly anticipated revival in the merger and acquisition market take place? How much longer will venture capital and PE firms with aging portfolio assets have to wait before strategic investors are ready and willing to buy them?
These questions have been asked repeatedly since the 2007 financial crisis cast a pall over global M&A deal-making. Judging from the data, the wait for a substantial turnaround will be a little longer yet. Preliminary data released by Thomson Reuters (publisher of peHUB Canada) last week show that worldwide M&A activity in the first half of 2013 totaled US$979 billion, down 9% from the first half of last year. In fact, it was the slowest year-to-date period for international transactions since 2009.
The situation is, of course, much the same in Canada’s M&A market. In the first three months of the year, Crosbie & Co. reports that deal-making fell back to 2009 levels. This followed mixed results for 2012 as a whole, when transactions were fewer compared to 2011, but attracted higher values – a total of $183.4 billion, up 15% year over year.

Colin W. Walker, managing director at Crosbie, in a news release cites “macro-economic uncertainty” as one of the chief “culprits” behind softer M&A conditions in early 2013. 
Read more

Colin W. Walker has extensive experience in the full range of Crosbie's investment banking and direct investing activities. For over 20 years, he has played a leading role in numerous transactions including acquisitions, divestitures, financings, restructurings and financial opinions. Additionally, he managed the firm's initiative as Investment Advisor and Portfolio Manager to First Ontario Fund and has been a Director of a number of private and public companies, as well as Director of the Toronto Chapter of the Turnaround Management Association. He joined Crosbie from UBS Canada where he managed relationships and structured transactions for a diverse range of mid-market and corporate clients. He holds a Bachelor of Chemical Engineering & Management degree from McMaster University and an MBA from the Michael G. DeGroote School of Business.

July 5, 2013

Spicy foods poised for growth as global demand rises

The global popularity of spicy foods, combined with the trend towards ethnic foods in the US, makes products like Tabasco pepper sauce poised for growth. With global population growing, particularly in India and China, food companies are in demand by buyers.

Spots of activity are happening across the ethnic food industry in Canada, which is highly fragmented, with a wide scattering of companies making revenues from $10-million to $100-million. These owners are often running lifestyle businesses and they serve a niche market, such as tropical fruit drinks and spicy snacks for Asian customers.


The range of consumers clamouring for exotic tastes such as coconut water or tandoori-barbeque flavoured chips is expanding. Big companies, including Pepsi and Loblaws, are private-label innovating in this segment. Owners of ethnic food companies are finding their products moving from the back shelves to front-and-centre at the big-box retailers and gas stations to catch the consumer eye.



There are few large ethnic food players in Canada to keep a good balance of power with the corporate retailers and wholesalers who have been consolidating. The opportunity is ripe for a large company to roll-up the smaller ones and create a significant ethnic food business.

Read the whole article.

Jacoline Loewen is a director at Crosbiewhich focuses on succession advice for family businesses and closely held small to medium-sized enterprises. Crosbie develops customized strategies, particularly in relation to M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.

July 2, 2013

Pressure increases on the Food Industry to keep down prices

In the current uncertain economic environment, beverage businesses need to stay sharp if they are to generate the growth and profitability on which their future depends.
Whether your interests are domestic, regional or global, we have on-the-ground professionals in developed and ‘rapid-growth’ emerging markets and can bring the resources of a global team, coordinated through a single point of contact.
Our strong commitment to the sector means we can offer in-depth knowledge, practical experience, strong industry relationships and genuine global reach to help you fulfill your objectives.
Take a closer look at some of the areas for you to focus on to improve your company and supply chain.

Mergers and Acquisitions Deals are Changing.

Dramatic shifts are taking place in the world of mergers and acquisitions. The types of deals that are taking place – and the way they’re financed and executed – are changing significantly.
Your business may be looking to divest assets or to acquire assets at competitive prices to increase your market share. Either way, you need to analyze the value and risks of a deal, to understand if you have a solid business case for moving forward.

What one question would you ask the CEO?

Interesting question - what would you ask to get the CEO to show their true abilities?

From HBR: Have you ever pondered what you'd ask the CEO if you were made chairman of the board for 10 minutes and could pose one question? You'd want to make it count. Nothing about markets or strategies — CEOs have canned answers for that kind of thing. You'd want a question that would strip away the cloak of invincibility and reveal the CEO's innermost fears. A question that could tell you a lot about the company's potential under this leader. Read more.