Most startups hope to be acquired within three years: PwC
Survey reveals 78% of of emerging companies are looking at some sort of exit strategy, up from last year's 44%.
TORONTO — Canadian start-ups are eagerly hanging “For Sale” signs on their businesses and hoping to be snapped up quickly through simple acquisitions.
That’s according to an annual survey of 150 chief executives by PwC, which says that 78% of emerging companies are looking at some sort of exit strategy, with nearly two-thirds eyeing an acquisition – up from last year’s 44%.
Few companies are interested in going public through an initial public offering, or IPO, because they’re concerned about a challenging IPO market, the survey showed.
But it’s not just an exit strategy that start-ups are after; they want a quick way out.
PwC found that 40% plan to leave the market in between one and three years.
Eugene Bomba, Canadian Emerging Company Services Leader at PwC, says large US companies are the most likely to acquire Canadian businesses, and to do so predominantly for talent and through mergers and acquisitions (M&A).
“Despite seeing better valuations in the public market recently, most emerging companies still aren’t willing to take the risk to IPO,” Bomba said.
He said the costs associated with going public are often too high for a small business to assume, particularly given the recent IPOs, such as Facebook, which have stumbled out of the gate.
Yet even though most startups said they’d like to be acquired, the report found that many show a “startling” lack of acquisition preparedness.
The companies tend to be up to date on taxes and corporate documents, but less than a quarter have reviewed or audited their financial statements and only 11% have completed a formal valuation.
In fact, 22% have taken no steps towards preparing for a sale.
“While exiting through acquisition doesn’t bring about the same level of scrutiny as an IPO, M&As do carry their own set of challenges and require a significant amount of due diligence,” Bomba said.
“A major component of a successful acquisition is preparedness, so that when the time is right companies are in the position to negotiate a strong sale.”
The survey also found that 35% of respondents said funding was their biggest challenge in their most recent financial year, followed by revenue generation. Canada remains their main source of revenue, with online sales as a key driver.
Attracting and retaining talent was only a concern for 10 per cent of companies – a big change from two years ago, when it was the top challenge for startups.
PwC Canada provides assurance, tax, consulting and deals services across the country.
The annual Emerging Companies Survey looked at 150 Canadian startup CEOs and the challenges, opportunities, and strategic priorities surrounding their business.
© 2014 The Canadian Press