In a recent report CBC estimated that “$1.9 trillion in business assets are poised to change hands in five years — the biggest transfer of Canadian business control on record.” The CBC went on to state, “by 2022, this number will mushroom to at least $3.7 trillion as 550,000 owners exit their businesses. Given this magnitude, a faulty or badly executed succession planning process could have a ripple effect throughout the Canadian economy via reduced productivity, job losses, premature sales and increased bankruptcy rates…” Baby boomer companies “that will see a change ownership in the next five years currently employ close to two million people and account for at least 15 per cent of gross domestic product.”
The need for baby boomers to sell their businesses to fund retirement is a financial issue that has received limited media attention to date. However, we believe it could be poised to become one of the most pressing economic challenges facing the Canadian economy. The amount of capital in the Canadian private equity market is dwarfed by the magnitude of the value of assets that will be seeking new owners. While private equity transactions are measured in billions of dollars annually in Canada, the estimates are for trillions of dollars of baby boomer business assets to be seeking buyers over the next decade. This supply/demand mismatch is particularly pronounced for businesses with values in the $2 million to $20 million range – the nano-gap. New approaches to bring capital and investors into the nano-gap market are an important part of solution.