The forced hiatus in business activity and the economic shock
caused by COVID-19 have hit many Quebec business owners hard. The
impact is especially heavy for owners saddled with the burden of
succession planning and finding no one to take over the reins.
Currently, 30 to 60,000 Quebec businesses are in danger of
disappearing within five years due to a lack of suitable
successors.1
Prior to the COVID-19 crisis, just under one in four owners of
small and medium enterprises (SMEs) intended to transfer their
businesses between 2017 and 2022. For Canada as a whole, the
proportion is only one in five SMEs.2 In many cases in
which owners expressed a willingness to transfer their business,
they had neither a succession plan nor a suitable successor. The
problem can be attributed to several factors, including a shortage
of entrepreneurial successors—the direct result of an ageing
population—and the retirement of many entrepreneurs.
The new reality will have direct consequences on the Quebec
economy and may hasten the premature closure of many
businesses.3 According to the Canadian Federation of
Independent Business (CFIB), roughly 25% of Quebec SMEs will close
after a few months due to the sharp drop in revenues caused by the
COVID-19 crisis.4 Therefore, it appears that the need
for business transfers and transferees will be much more pressing
and will only be intensified by the current crisis.
For many business owners without a succession or transfer plan,
the solution lies in a takeover or acquisition by foreign
investors. The business succession challenges in Quebec can and
should be seen as an opportunity for wealth creation. In this
context, Quebec’s rich and diversified market for business
transfers represents an opportunity for foreign investors insofar
as the Quebec government supports foreign investment.
1. Overview of Quebec’s rich and diverse market for
business transfers
In Quebec, business owners looking for successors come from all
industry sectors, but a significant number work in the
agribusiness, advanced manufacturing, pharmaceuticals and
cosmetics, aeronautics, tourism and specialized services
sectors.
Both in Quebec and in Canada as a whole, majority owners of SMEs
tend to favour external transfers of SMEs. In Quebec, 51% of
majority owners who intend to transfer an SME prefer an external
transfer, i.e. a transfer to someone who is neither a relative nor
internal to the company. In Canada, 59% of majority owners prefer
the external transfer method for SMEs.
Moreover, researchers have observed that nearly one-third of
Quebec SMEs originate from business transfers, while in Canada,
that proportion was one-quarter in 2017.5
2. Business transfers in Quebec: an opportunity for
foreign investors
The demand for SME successors is relatively higher in Quebec
than in other Canadian regions. Business transfers are a growing
feature of the Quebec business landscape and represent an
unprecedented business opportunity for foreign investors.
The influx of foreign capital into a business to be transferred
can be a major stimulus to its growth. In fact, the combination of
new capital and the foreign investor’s international network
and expertise is a major asset for both the transferred company and
the business ecosystem in Quebec.
“Field observations show that transferred SMEs often adopt
longer-term sustainability strategies that do not necessarily
promote high growth when the successor pursues a strategic renewal
process,” says Professor Louise Cadieux.6
Foreign investors, especially Europeans, often choose Quebec as
a gateway to North America. Aside from the favourable exchange
rate, their choice is driven by economic, political, geographic and
linguistic factors, among others.
Quebec has a dynamic economic environment and stands out for its
many tax advantages and other conditions favourable to the export
of goods and services. The business income tax rate is also among
the lowest in North America.
Quebec is a party to several trade agreements and is a signatory
to free trade agreements with major economic partners (CUSMA, CETA,
CPTPP), thus positioning Quebec well on the world stage.
Furthermore, the quality of its workforce, as well as its network
of higher education and business research and development
facilities, rank among the world’s best.
3. A government that helps attract foreign
investment
Attracting investment and boosting exports are current
government priorities.
- Investissement Québec
International offers programs to help companies carry out
their investment projects and can provide development capital to
companies looking to invest in Quebec.
- Montréal
International and Québec International promote
the economic development of the metropolis and the
Capitale-Nationale region, providing on-the-ground support to
foreign companies or investors setting themselves up in
Quebec.
- Quebec’s Ministry of Economy and
Innovation and the foreign representation offices of the Ministry
of International Relations and La Francophonie provide information
on entrepreneurship as well as on Quebec’s venture capital
industry and potential investors. They also offer several training
programs.7
The Quebec Government also supports business transfers through
the Centre de transfert d’entreprises du Québec
(CTEQ) and the Fonds de transfert d’entreprise du
Québec (Quebec Business Transfer Fund). New
entrepreneurs looking to go into business will be able to benefit
from financial support tailored to business transfers, including
favourable financing terms.8
4. Unique ties for business transfers between Quebec and
France
Business ties are natural between Quebec and France, based on
their historical connection and shared language. In fact, the
economic relationship between Quebec and France is characterized by
extensive foreign investment. There are over 300 subsidiaries of
French companies operating in Quebec. Moreover, in recent years,
France has regularly ranked between 4th and
6th largest trading partner worldwide.
Of note, the Mouvement pour les jeunes entrepreneurs
(Moovjee), founded in Paris in 2009 and the Quebec Moovjee, which
followed in 2019 have become a source of inspiration to young
French and Quebecois entrepreneurs wanting to start or take over a
business.9
5. The role of Langlois lawyers in foreign acquisitions
in Quebec
For many years, Langlois lawyers have been acting for
foreign—particularly French—buyers in Quebec
acquisitions that typically stem from the lack of a successor
within the family. This experience allows us to advise our clients
on legal and regulatory matters pertaining to the structure of the
acquisition, the nuances of due diligence, the labour relations
environment, and the preparation and negotiation of key contracts.
In a setting in which acquisitions of this nature are likely to
increase significantly as a result of the COVID-19 crisis, we will
continue to guide buyers on their approach to doing business in
Quebec and on the business environment in general.
Footnotes
2 Marc Duhamel, François Bouard, Louis Cadieux,
Frédéric Laurin, Portrait du repreneuriat de PME
au Québec en 2017 (French only), École de
gestion de l’Université du Québec à
Trois-Rivières and Centre de transfert d’entreprise du
Québec, 2019.
3 According to Kristalina Georgieva, Managing Director of
the International Monetary Fund (IMF), the impact of the current
pandemic on the global economy is the worst economic fallout since
the Great Depression that followed the crash of 1929 (see, in
particular, https://ici.radio-canada.ca/nouvelle/1692403/fmi-pires-consequences-economiques-grande-depression-georgieva).
4 https://ici.radio-canada.ca/nouvelle/1670315/economie-pme-covid-19-impact-fcei
7 https://www2.gouv.qc.ca/entreprises/portail/quebec/investir?lang=fr&x=investir&e=1384428485
8 The Fonds de transfert d’entreprise du
Québec is a limited partnership established under the
laws of the Province of Quebec and whose funds are managed by
Investissement Québec (see, in particular, http://www.fteq.ca/index.php/en-bref).
Originally published 24 July, 2020
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