One in four entrepreneurs in Canada looking to sell or close their business: report

A new report has found that more business owners are turning to mergers and acquisitions through the pandemic recovery as a way to address the ongoing labour shortage.

According to a BDC study released on Tuesday, 30 per cent of business owners say the top factor motivating the pursuit of an acquisition is getting access to new talent, up from 20 per cent before the COVID-19 pandemic struck. Acquiring new technologies is cited as the second top factor, with 25 per cent of entrepreneurs citing it as an important motivation, up from 14 per cent pre-pandemic.

This comes as one in four Canadian businesses look to sell or close their business within the next five years.

"The labour shortage is having an impact because it's very difficult right now to recruit people, so it's limiting the growth for many companies," Pierre Cléroux, BDC's chief economist said in an interview.

"Usually you make an acquisition to get into another market but on top of that, you get access to a pool of workers you wouldn't have otherwise had, so I think that's a motivation that we're going to see more and more (of) in the next few years."

Many businesses in Canada are struggling to retain and recruit workers amid the ongoing labour shortage. According to a BDC report released in September, 55 per cent of entrepreneurs are having difficulty hiring workers and have been unable to fill jobs for three to four months. Another 26 per cent are having difficulty retaining workers, resulting in a situation that could threaten Canada's economic growth prospects.

While hiring is still a struggle, business acquisitions have rebounded quickly following the worst of the pandemic. The BDC report found that mergers and acquisitions worth up to $5 million surpassed pandemic lows in the first quarter of 2021, while M&A activity worth between $5 million and $100 million recovered in the second quarter of the year.

The report says the key factors fuelling the M&A recovery include low interest rates, strong demand for Canadian companies in COVID-19-proof sectors such as healthcare and technology, as well as private and public investment funds flush with capital.

"The number of transactions really slowed in 2020, but things are now back to normal. We were surprised to see it came back so quickly," Cléroux said.

"A lot of entrepreneurs are getting older, the economy is performing well, interest rates are low, so it's a good time to make an acquisition."

The BDC report is based on a survey of 1,563 Canadian entrepreneurs conducted online in May and June, and was supplemented by a series of interviews with entrepreneurs in the manufacturing, retail and service sectors.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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