03-01 M&A

It was 1954 and I was an engineering student. At the end of each day I walked from the University of Toronto over to the family clothing store. It was John Bulloch Ltd, a profitable manufacturing and retail operation that employed about 25 people.
And a large manufacturer in Montreal made an offer of $1 Million to buy the company. This was a fortune in 1954. But they wanted to close my father’s factory and supply product from their own facility. This to my father was impossible. His Italian tailors, all from Calabria, were part of his family.
Essentially, there just wasn’t a fit. And in the business of Mergers and Acquisitions (M&A), a fit means more that money to be made on the deal, but a long-term arrangement that both parties can build on. Lots of symmetry in terms of the way they do business, their customer base, their assets and that kind of thing.
During my teaching years at the Ryerson University in Toronto, I taught a basic course in finance, and my colleague that shared by office taught the M&A course. Over time, M&A basics have not changed. There are just so many ways to put a value on a company. The most important issue is being able to measure future cash flows.
But regardless, if your small company has 5 million shares outstanding and you are offered $2 per share you have a company worth $10 million. Usually with the help of professional advisers you may believe your company is worth $15 million. The issue is whether via a merger or an acquisition you can create a 3+2=7 situation.
What is so interesting about 2020 and the pandemic is that the interest in mergers and acquisitions may be on hold, because everyone is functioning during a period of stress, but those with lots of cash are still looking for deals. And sometimes the best deals can be made when the potential acquisition is forced into some form of insolvency.
The net result of the global insolvency is a lot of delayed mergers and acquisitions, but with large cash strong corporations becoming stronger.
The corporate US giants today are Alphabet (Google), Amazon, Facebook and Microsoft. Anticipate these firms getting bigger and stronger. And anticipate a cry from the political left for more regulation.
Most of my life has been entwined with the development of small business. And an online learning company I started began receiving offers to sell as soon as we became well established. There is an active M&A business continuously on the hunt for promising young companies. They kept coming out of nowhere.
They were all US investment bankers who wanted to buy us and then merge us with one or two other companies. And then sell the new package to a large US public company. And what happens to your employees? You just never know.
But something I am proud of is the Canadian tax system for small firms, that I helped change. It supports Canadian firms growing as Canadian firms. And it supports Canadian ownership.