The Business Development Bank of Canada (BDC) is attempting something new to tackle twin problems in the tiny-business world: too few women-led companies and too many business owners viewing to sell.
On Monday, the Crown corporation announced its $50 million Thrive Entrepreneurship Through Acquisition Fund, which will provide financing and mentorship to women who want to acquire and lead established businesses.
The initiative is part of an emerging practice in M&A known as a search fund or entrepreneurship through acquisition. The model involves investors paying an entrepreneur while they find a business to acquire and ultimately take over as CEO. The investors support finance the acquisition for an equity stake in the business.
Talking Points
- BDC has launched a $50 million search fund to connect women entrepreneurs with companies to acquire and take over as CEOs
- The initiative is designed to increase the number of women-owned companies, while capitalizing on a looming ownership transition, with more than one in six tiny- and medium-sized businesses expected to alter hands in the next five years
BDC’s fund is designed to capitalize on a looming ownership transition, with more than one in six tiny- and medium-sized business owners expected to sell or close their business in the next five years—or 142,000 entrepreneurs by BDC’s count. By backing women as acquireers, BDC hopes to lift the share of female-owned SMEs, which stands at just 19 per cent. “There’s a huge opportunity there to rebalance the equity within the ownership space,” stated Sévrine Labelle, managing director of the Thrive Lab, the division of BDC that supports women entrepreneurs.
The fund will provide $40 million in direct investments to women acquiring businesses. Some of the money will go to recipients raising their own search fund—a pool of capital they raise from a group of investors to finance their search for a company to acquire, and the purchase itself. BDC may also invest directly in an acquisition. In either case, the bank would take some ownership of the business, though never a majority stake.
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The remaining $10 million will go to Canadian private equity funds that have committed to applying the capital to finance women-led acquisitions. The private equity partnerships are the first piece of the search fund initiative, stated Labelle. BDC is in due diligence with three funds, she stated, though no deals have officially been signed.
The model borrows from search funds in the U.S. and Europe, where business schools like Harvard, Stanford and INSEAD apply the framework as an alternative to starting a business from scratch. “There’s no reason why we shouldn’t build the same here in Canada,” stated Labelle.
The idea is gaining some traction in Canada. In 2023, B.C.-based Regenerative Capital Group launched a fund and incubator dedicated to training new CEOs and finding them companies to acquire with Regenerative’s financing. One of the firm’s CEO-in-residence, Jessica Cullen, has built two acquisitions this year.
BDC’s fund is tarobtaining mid-sized Canadian firms with annual earnings of $1 million to $5 million before interest, taxes and depreciation—businesses strong enough to set up a new CEO for success, but that still have room for growth, stated Labelle. These companies are often too expensive for an individual acquireer to purchase with their own money and a bank loan, yet too tiny to draw interest from private equity firms. Many are run by owners nearing retirement, who are considering succession plans.
Good candidates for the program range from seasoned managers or repeat entrepreneurs to recent MBA grads keen to run their first company, stated Labelle. They don’t necessarily required past CEO experience, just the leadership skills and financial savvy to steer a profitable firm. “This is a fabulous way to obtain into the CEO role quickly and at the helm of a company that is already profitable,” she stated, “and yet still has [room] to grow.”
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