Financial Update for Nov. 19, 2009

• TSX +22.69(Reuters)

• DOW -11.11

• Dollar -.31c to 94.83cUS

• Oil +$.44to $79.58US per barrel.

• Gold +$1.90 to $1,140.70USD per ounce

'Everything for sale at a price'

Rick Spence, Financial Post

Maybe there are just two types of entrepreneurs: those who stand ready to sell their companies at a moment's notice, and those who think of their businesses as intensely personal achievements, fused to their skills, their self-image, and their hopes and dreams.

Both types showed up at an all-star business panel in Toronto last week organized by WXN, the Women's Executive Network, to discuss the buying and selling of businesses. The participants included two brawlers from the hit TV series, Dragons' Den, Kevin O'Leary and Robert Herjavec, and two award-winning women entrepreneurs: Teresa Cascioli, former CEO of Lakeport Brewing, and Rebecca MacDonald, founder of the fixed-price utility giant Just Energy.

The panel started off by noting how timely the topic is. "This is a phenomenal time to be in the market," said MacDonald, whose company made an acquisition just three months ago. "I have never seen more distress sales than I'm seeing today. If you've got cash, prices are low and it's time to buy."

O'Leary, who introduced himself as one of Just Energy's biggest shareholders through his O'Leary mutual funds, demonstrated his contrarian nature by questioning Mac-Donald's thesis. "Maybe those aren't distressed values," he said. "Maybe they're realistic values given today's market."

Many companies "kill shareholder value," he added, when they acquire other businesses that don't immediately boost the buyers' income statements. "What's important is free cash flow," he maintained. "If I buy my competitor's business, will I generate more cash than I had without it? That's the only question that matters."

As he often does on TV, Herjavec challenged O'Leary's assertion. The founder of computer-security company Herjavec Group said he had just closed a deal that cashes in on the same tough times Mac-Donald cited. "We bought a $15-million company with no money down, based on their own cash flow," he said. "If I had approached this guy with this deal three years ago, he would have laughed at me."

What matters, said Herjavec, isn't just cash, but whether the deal will give his company more market coverage and access to additional customers.

Having turned around troubled Lakeport Brewing of Hamilton prior to selling it to Labatt in 2007, Cascioli sided with the sellers. Her advice to entrepreneurs: "If you're selling, hold out. If you can ride out [the current downturn], you will get more money tomorrow than you'll get today."

But the fireworks really began when O'Leary advised the entrepreneurs in the audience to consider their business as being on the market at all times. "When someone wants to buy your business, sell it to them." (Assuming they're offering cash, that is. O'Leary thinks taking stock in return for your shares is like betting against your own horse.)

"Go take the cash and pursue some other opportunity," O'Leary advised. "Taking a business liquid again is a rare opportunity."

"Everything is for sale, at a price," MacDonald agreed. Her own experience shows it's smart to entertain all offers. She sold a previous business after some hardball negotiations with a foreign buyer. Imagine her delight when she got the cheque and found that while she had been thinking in dollars, her buyer had been negotiating in pounds sterling!

But again Herjavec disagreed. "I would rather invest in other companies than sell mine," he said. "I'm an operator. Starting a business from zero is hard. I don't think I want to do that again."

This time MacDonald took Herjavec on. "Kevin and I don't agree on a lot," she said. "But we agree that if you are not willing to sell your business, you don't have a business. You have a hobby."

Cascioli went even further. "If you don't want to sell your business, there's something wrong with you. If you are so passionate that you are going to stay there forever, you are devaluing your business."

Herjavec agreed that when there's an offer, you have to look at it: "You owe it to your family." But it was clear where his heart lies: "I like to build businesses. I like to grow them." Not constantly trade them in for something shinier.

Before the panel ended, O'Leary offered one more insight: Buyer beware. His former firm, The Learning Co., bought 35 companies in its successful campaign to consolidate the educational software market. In making deals, he said, "I make the assumption going in that everyone's lying to me." His rule of thumb: after he and his team estimate the value of an acquisition, based on the data available, they pore over all the documents. If they believe the company is likely to underperform their projections by 20% or less, they'll sign the deal. But if the shortfall is a nickel over 20%, they'll walk away.

In an interview after the panel, O'Leary clarified a point: "It's not really that they're lying," he said. "They're just over-optimistic about their prospects -- 100% of the time."